Coalitions, Leadership, and Social Norms: The Power of Suggestion in Games

This paper examines the set of outcomes sustainable by a leader with the power to make suggestions in games. By acting as focal points, these suggestions are important even if players can communicate and form coalitions. For finite-horizon games, I show that sustainable outcomes are supported by “scapegoat” strategies, which hold a single player accountable for the actions of a group. For infinite-horizon, two-player repeated games, I show that by using an appropriate sequence of punishments and rewards, a leader can induce sufficiently patient players to play any feasible, individually rational outcome. Finally, leadership power is shown to increase if coalitions must consider the credibility of deviations in a manner similar to Coalition-Proof Nash Equilibrium. Journal of Economic Literature Classification Number: 026. 8 1~2 Academic PXSS, hc.