Strategic interaction and externalities: FD-games and pollution

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Abstract

To analyze strategic interaction which may induce externalities, we designed Bathroom Games with frequency-dependent stage payoffs. Two people regularly use a bathroom, before leaving they can either clean up the mess made, or not. Cleaning up involves an effort, so this option always gives a lower immediate utility than not cleaning up. The immediate utility of using the bathroom depends on its condition: the cleaner it is, the higher the utility. The pollution at a certain point in time depends on how often the players did not clean up in the past. Furthermore, as the bathroom's condition deteriorates, cleaning up becomes more burdensome, leading to increasing disutilities. We follow the analysis of repeated games and find that if the agents are sufficiently patient, individually-rational rewards can be supported by (subgame perfect) equilibria involving threats. In almost every such equilibrium, the bathroom is cleaned up regularly.
Original languageEnglish
Place of PublicationJena, Germany
PublisherMax Planck Gesellschaft
Publication statusPublished - 2004

Publication series

NamePapers on economics & evolution, 1430-4716
PublisherMax-Planck-Gesellschaft
No.2004-17

Fingerprint

Pollution
Externalities
Cleaning
Strategic interaction
Threat
Reward
Subgame perfect equilibrium
Repeated games

Keywords

  • IR-61517
  • Frequency-dependent stage payoffs
  • average rewards
  • repeated and stochastic games
  • Folk Theorems

Cite this

Joosten, R. A. M. G. (2004). Strategic interaction and externalities: FD-games and pollution. (Papers on economics & evolution, 1430-4716; No. 2004-17). Jena, Germany: Max Planck Gesellschaft.
Joosten, Reinoud A.M.G. / Strategic interaction and externalities: FD-games and pollution. Jena, Germany : Max Planck Gesellschaft, 2004. (Papers on economics & evolution, 1430-4716; 2004-17).
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Joosten, RAMG 2004, Strategic interaction and externalities: FD-games and pollution. Papers on economics & evolution, 1430-4716, no. 2004-17, Max Planck Gesellschaft, Jena, Germany.

Strategic interaction and externalities: FD-games and pollution. / Joosten, Reinoud A.M.G.

Jena, Germany : Max Planck Gesellschaft, 2004. (Papers on economics & evolution, 1430-4716; No. 2004-17).

Research output: Book/ReportReportOther research output

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AB - To analyze strategic interaction which may induce externalities, we designed Bathroom Games with frequency-dependent stage payoffs. Two people regularly use a bathroom, before leaving they can either clean up the mess made, or not. Cleaning up involves an effort, so this option always gives a lower immediate utility than not cleaning up. The immediate utility of using the bathroom depends on its condition: the cleaner it is, the higher the utility. The pollution at a certain point in time depends on how often the players did not clean up in the past. Furthermore, as the bathroom's condition deteriorates, cleaning up becomes more burdensome, leading to increasing disutilities. We follow the analysis of repeated games and find that if the agents are sufficiently patient, individually-rational rewards can be supported by (subgame perfect) equilibria involving threats. In almost every such equilibrium, the bathroom is cleaned up regularly.

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KW - repeated and stochastic games

KW - Folk Theorems

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Joosten RAMG. Strategic interaction and externalities: FD-games and pollution. Jena, Germany: Max Planck Gesellschaft, 2004. (Papers on economics & evolution, 1430-4716; 2004-17).