Proper equilibrium plays a prominent role in the literature on non-cooperative games. The underlying thought experiment is, however, unsatisfying, as it gives no justification for its fundamental idea that severe mistakes are made with a significantly smaller probability than innocuous ones. In...

This paper analyses the role of transfer payments and strategic con tracting within two-person strategic form games with monetary pay-offs. First, it introduces the notion of transfer equilibrium as a strategy combination for which individual stability can be supported by allowing the...