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Published April 2005 | public
Journal Article Open

Endogenous games and mechanisms: Side payments among players

Abstract

We characterize the outcomes of games when players may make binding offers of strategy contingent side payments before the game is played. This does not always lead to efficient outcomes, despite complete information and costless contracting. The characterizations are illustrated in a series of examples, including voluntary contribution public good games, Cournot and Bertrand oligopoly, principal–agent problems, and commons games, among others.

Additional Information

© 2005 The Review of Economic Studies Limited. First version received August 2002; final version accepted May 2004. We thank Ken Hendricks, Philippe Jéhiel, Ehud Kalai, Roger Lagunoff, Bentley MacLeod, Nolan Miller, Hakan Orbay, Mike Peters, Michael Whinston, and seminar participants at the University of Arizona, Caltech, University of Texas, University of Toronto, U.B.C., USC, and the Decentralization Conference for helpful comments.We also thank the editor and anonymous referees for helpful suggestions. Financial support under NSF grants SES-9986190, SES-9986676, and SES-0316493 is gratefully acknowledged.

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August 22, 2023
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October 16, 2023