TY - CHAP

T1 - Dynamic economic optimization

T2 - Group optimality and individual rationality

AU - Yeung, David W.K.

AU - Petrosyan, Leon A.

PY - 2012/1/1

Y1 - 2012/1/1

N2 - The most appealing characteristic of perfectly competitive markets is that individually rational behaviors bring about group (Pareto) optimality in economic resource allocation. However, the market fails to provide an effective mechanism for optimal resource use because of the prevalence of imperfect market structure, externalities, imperfect information, and public goods in the current global economy. As a result, though the market is one of the most effective instruments in conducting economic activities, it fails to guarantee its efficiency under the current arrangement. The noncooperative outcomes characterized in Chap. 2 vividly demonstrate that Pareto optimality could not be achieved by markets. Removing market suboptimality is not just a task of achieving a better alternative, but sometimes it can be an absolute necessity. For instance, efforts to alleviate the worldwide financial tsunami and catastrophe-bound industrial pollution are currently pressing issues.

AB - The most appealing characteristic of perfectly competitive markets is that individually rational behaviors bring about group (Pareto) optimality in economic resource allocation. However, the market fails to provide an effective mechanism for optimal resource use because of the prevalence of imperfect market structure, externalities, imperfect information, and public goods in the current global economy. As a result, though the market is one of the most effective instruments in conducting economic activities, it fails to guarantee its efficiency under the current arrangement. The noncooperative outcomes characterized in Chap. 2 vividly demonstrate that Pareto optimality could not be achieved by markets. Removing market suboptimality is not just a task of achieving a better alternative, but sometimes it can be an absolute necessity. For instance, efforts to alleviate the worldwide financial tsunami and catastrophe-bound industrial pollution are currently pressing issues.

KW - Cooperative strategy

KW - Group optimality

KW - Individual rationality

KW - Optimal control problem

KW - Transfer payment

UR - http://www.scopus.com/inward/record.url?scp=85057571220&partnerID=8YFLogxK

U2 - 10.1007/978-0-8176-8262-0_3

DO - 10.1007/978-0-8176-8262-0_3

M3 - Chapter

AN - SCOPUS:85057571220

SN - 978-0-8176-8261-3

T3 - Static and Dynamic Game Theory: Foundations and Applications

SP - 47

EP - 76

BT - SUBGAME CONSISTENT ECONOMIC OPTIMIZATION: AN ADVANCED COOPERATIVE DYNAMIC GAME ANALYSIS

PB - Birkhäuser Verlag AG

ER -