How Can Decentralized Non-Cooperative Stabilization Policies Be Efficient? — A Differential Game Approach
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It is well known that non-cooperative behaviour of different policy-makers, either central bank and government on a national level or governments of different countries on an international level, may result in severe overall losses and inefficiencies. On the other hand, policy coordination is difficult to achieve, given the mechanisms of negotiations between several policy-making institutions. A solution to this “trade-off” would be a mechanism inducing individual behaviour that ensures efficient (Pareto-optimal) outcomes equivalent to those achieved by cooperation, but without the need of explicit agreements.
KeywordsNash Equilibrium Equilibrium Solution Feedback Strategy Policy Coordination Memory Strategy
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