A cooperative game of technology spillover under durable strategies

Abstract

Durable strategies are prevalent in capital investments. We present a cooperative durable-strategies dynamic game in which there are two types of capitals—a public capital and a number of private capitals with technology spillover. An efficient cooperative scheme is developed to capture the gains from cooperation in the investments of these capitals, which are known for their positive externalities. A dynamically consistent solution and a corresponding payment mechanism are derived. This is the first time that cooperative solution of durable-strategies games involving capital investments is developed.