Maximizing Social Welfare with Side Payments
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arXiv
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| Format: | Preprint |
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2025
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| _version_ | 1866908483816783872 |
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| author | Geffner, Ivan Oesterheld, Caspar Conitzer, Vincent |
| author_facet | Geffner, Ivan Oesterheld, Caspar Conitzer, Vincent |
| contents | We examine normal-form games in which players may \emph{pre-commit} to outcome-contingent transfers before choosing their actions. In the one-shot version of this model, Jackson and Wilkie showed that side contracting can backfire: even a game with a Pareto-optimal Nash equilibrium can devolve into inefficient equilibria once unbounded, simultaneous commitments are allowed. The root cause is a prisoner's dilemma effect, where each player can exploit her commitment power to reshape the equilibrium in her favor, harming overall welfare.
To circumvent this problem we introduce a \emph{staged-commitment} protocol. Players may pledge transfers only in small, capped increments over multiple rounds, and the phase continues only with unanimous consent. We prove that, starting from any finite game $Γ$ with a non-degenerate Nash equilibrium $\vecσ$, this protocol implements every welfare-maximizing payoff profile that \emph{strictly} Pareto-improves $\vecσ$. Thus, gradual and bounded commitments restore the full efficiency potential of side payments while avoiding the inefficiencies identified by Jackson and Wilkie. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2508_07147 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Maximizing Social Welfare with Side Payments Geffner, Ivan Oesterheld, Caspar Conitzer, Vincent Computer Science and Game Theory Theoretical Economics We examine normal-form games in which players may \emph{pre-commit} to outcome-contingent transfers before choosing their actions. In the one-shot version of this model, Jackson and Wilkie showed that side contracting can backfire: even a game with a Pareto-optimal Nash equilibrium can devolve into inefficient equilibria once unbounded, simultaneous commitments are allowed. The root cause is a prisoner's dilemma effect, where each player can exploit her commitment power to reshape the equilibrium in her favor, harming overall welfare. To circumvent this problem we introduce a \emph{staged-commitment} protocol. Players may pledge transfers only in small, capped increments over multiple rounds, and the phase continues only with unanimous consent. We prove that, starting from any finite game $Γ$ with a non-degenerate Nash equilibrium $\vecσ$, this protocol implements every welfare-maximizing payoff profile that \emph{strictly} Pareto-improves $\vecσ$. Thus, gradual and bounded commitments restore the full efficiency potential of side payments while avoiding the inefficiencies identified by Jackson and Wilkie. |
| title | Maximizing Social Welfare with Side Payments |
| topic | Computer Science and Game Theory Theoretical Economics |
| url | https://arxiv.org/abs/2508.07147 |