On potential maximization as a refinement of Nash equilibrium

We specify an adjustment process that converges to the set of potential-maximizing strategy profiles for 3-player cooperation-formation games or n-player cooperation-formation games based on a superadditive characteristic function. Our analysis provides a justification for potential maximization as a refinement of Nash equilibrium in these settings.adjustment process.

On cooperation structures resulting from simultaneous proposals

This paper looks at cooperation structures that result from a strategic game where players make simultaneous proposals for cooperation. We identify cooperation structures that maximize the potential of the game, and show how the outcome of potential maximization depends on the players' Shapley values. We do not assume superadditivity and hence, potential-maximizing strategy profiles do not always involve full cooperation. In cases where full cooperation does result from potential maximization it can be inefficient. An example provides intuition.cooperation formation game

A Credit Mechanism for Selecting a Unique Competitive Equilibrium

The enlargement of the general-equilibrium structure to allow default subject to penalties to appririate credit limits and default penalties results in a construction of a simple mechanism for a credit using society. We show that there generically exists a price-normalizing bundle that determines a credit money along with appropriate credit limits and default penalties for a credit mechanism to select a unique competitive equilibrium (CE). With some additional conditions, a common credit money can be applied such that any CE can be a unique selection by the credit mechanism with appropriate credit limits default penalties for the traders. This will include a CE with the minimal cash flow penalty. Such CEs are special for the reason that we minimize the need for a substitute-for-trust (i.e. money) in trade.Competitive equilibrium, Credit mechanism, Marginal utility of income, Welfare economics

Trade through endogenous intermediaries

We apply an intermediation game of Townsend (1983) to analyze trade in an exchange economy through endogenous intermediaries. In this game, each trader has the opportunity to become an intermediary by oering to buy or sell unlimited quantities of the commodities at a certain price vector and for a certain group of customers subject to feasibility constraint. An intermediary will not be active unless some of its customers subsequently choose to trade with it. We introduce an "intermediation core" and show that the subgame-perfect equilibrium allocations of the intermediation game are contained in the intermediation core, similar to the inclusion of competitive equilibrium allocations in the core usually studied. We also identify, in terms of the supporting intermediary structures, intermediation core allocations which are also subgame-perfect equilibrium allocations of the intermediation game. These results provide both a characterization and welfare properties of subgame-perfect equilibrium allocations of the intermediation game.intermediation; core; subgame-perfect equilibrium

Selecting a Unique Competitive Equilibrium with Default Penalties

The enlargement of the general-equilibrium structure to allow default subject to penalties results in a construction of a simple mechanism for selecting a unique competitive equilibrium. We consider economies for which a common credit money can be applied to uniquely select any competitive equilibrium with suitable default penalties. We identify two classes of such economies. One consists of economies with utility functions being homogeneous of degree 1; the other consists of economies with the number of consumers equal to the number of commodities and traders having quasi-linear utility functions with respect to different commodities.Competitive equilibrium, Credit mechanism, Marginal utility of income, Welfare economics

A Credit Mechanism for Selecting a Unique Competitive Equilibrium

The enlargement of the general-equilibrium structure to allow default subject to penalties to appririate credit limits and default penalties results in a construction of a simple mechanism for a credit using society. We show that there generically exists a price-normalizing bundle that determines a credit money along with appropriate credit limmits and default penalties for a credit mechanism to select a unique competitive equilibrium (CE). With some additional conditions, a common credit money can be applied such that any CE can be a unique selection by the credit mechanism with appropriate credit limits default penalties for the traders. This will include a CE with the minimal cash flow penalty. Such CEs are special for the reason that we minimize the need for a substitute-for-trust (i.e. money) in trade

Potential Maximization and Coalition Government Formation

A model of coalition government formation is presented in which inefficient, non-minimal winning coalitions may form in Nash equilibrium. Predictions for five games are presented and tested experimentally. The experimental data support potential maximization as a refinement of Nash equilibrium. In particular, the data support the prediction that non-minimal winning coalitions occur when the distance between policy positions of the parties is small relative to the value of forming the government. These conditions hold in games 1, 3, 4 and 5, where subjects played their unique potential-maximizing strategies 91, 52, 82 and 84 percent of the time, respectively. In the remaining game (Game 2) experimental data support the prediction of a minimal winning coalition. Players A and B played their unique potential-maximizing strategies 84 and 86 percent of the time, respectively, and the predicted minimal-winning government formed 92 percent of the time (all strategy choices for player C conform with potential maximization in Game 2). In Games 1, 2, 4 and 5 over 98 percent of the observed Nash equilibrium outcomes were those predicted by potential maximization. Other solution concepts including iterated elimination of dominated strategies and strong/coalition proof Nash equilibrium are also tested.Coalition formation, Potential maximization, Nash equilibrium refinements, Experimental study, Minimal winning

Default, Efficiency and Uniqueness

An adequate description of economic dynamics requires the introduction of a monetary system including default penalties and expectations in a society whose economy utilizes money and credit. This essay notes and discusses several of the factors involved in the use of money and credit in a process oriented economy. It links these observations with the general equilibrium treatment of the same underlying economy and formulates a government guidance game where the government sets several key parameters in a monetary economy sufficient to select a unique equilibrium. Low information and error correction are noted. The links to the first and second welfare theorems of GE are also considered as is the setting of the price level