Transfers,contracts and strategic games

This paper analyses the role of transfer payments and strategic contracting within two-person strategic form games with monetary payoffs. First, it introduces the notion of transfer equilibrium as a strategy combination for which individual stability can be supported by allowing the possibility of transfers of the induced payoffs. Clearly, Nash equilibria are transfer equilibria, but under common regularity conditions the reverse is also true. This result typically does not hold for finite games without the possibility of randomisation, and transfer equilibria for this particular class are studied in some detail.