- New Horizons in Environmental Economics series
Chapter 4: Finite Dynamic Games with Discrete Strategy Space: A First Approach
4. Finite dynamic games with discrete strategy space: a ﬁrst approach INTRODUCTION 4.1 In Chapter 3 it became apparent that in a static PD or a chicken game a full cooperative outcome cannot be achieved due to the free-rider incentive. Now, in a dynamic context, we have to investigate whether contingent cooperation can be established by using threats and punishments. The term ‘contingent’ emphasizes that it can never be an equilibrium strategy to cooperate unconditionally as long as there is a free-rider incentive. In order to establish contingent cooperation two requirements are necessary: ﬁrst, it must be possible to check compliance; second, in case of a deviation from an agreed strategy, an appropriate punishment must be available to players. Due to the assumption of complete information, the ﬁrst requirement is satisﬁed by deﬁnition, though in reality it may only partially be fulﬁlled. Whether the second requirement can be satisﬁed depends basically on two questions: 1. 2. How severe and credible is the punishment? Does it pay to forgo an immediate gain from free-riding in order to be rewarded by cooperation? For the ﬁrst question the punishment options in a game are important. Obviously, the harsher the punishment, the higher is the potential of deterrence from cheating. However, if the player conducting the punishment also suﬀers some loss because of the punishment, credibility becomes an important issue. In the game theoretical literature the problem of credibility has attracted great attention and we shall deal with this...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.