Efficient effort equilibrium in cooperation with pairwise cost reduction

There are multiple situations in which bilateral interaction between agents results considerable cost reductions. The reduction that an agent obtains depends on the effort made by other agents. We model this situation as a bi-form game with two states. In first stage, decide how much to exert. stage non-cooperative game, these efforts will reduce of their partners second stage. This is modeled cooperative each other’s costs result cooperation, so total coalition sum reductions generated rest members coalition. proposed allocation for determines payoff function Based model, we explore costs, benefits, and challenges associated setting up pairwise situation. identify family allocations weighted always feasible contain Shapley value. also generate efficient equilibrium level.