The Strategy of Conflict and Cooperation

Abstract

In this paper, I introduce (i) a novel and unified framework, called cooperative extensive form games, for the study of strategic competition and cooperation, which have been studied in specific contexts, and (ii) a novel solution concept, called cooperative equilibrium system. I show that non-cooperative extensive form games are a special case of cooperative extensive form games, in which players can strategically cooperate (e.g., by writing a possibly costly contract) or act non-cooperatively. To the best of my knowledge, I propose the first solution to the long-standing open problem of "strategic cooperation" first identified by von Neumann (1928). I have one main result to report: I prove that cooperative equilibrium system always exists in finite n-person cooperative strategic games with possibly imperfect information. The proof is constructive in the case of perfect information games.

Keywords: strategic cooperation, non-cooperative games, cooperative games, backward induction, extensive form games

JEL Classification: C70, D74