Cooperation in Strategic Games Revisited*

Abstract For two-person complete-information strategic games with transferable utility, all major variable-threat bargaining and arbitration solutions coincide. This confluence of solutions by luminaries such as Nash, Harsanyi, Raiffa, and Selten, is more than mere coincidence. Staying in the class of two-person games with transferable unility, the article presents a more complete theory that expands their solution. Specifically, it presents: (1) a decomposition of a game into cooperative and competitive components, (2) an intuitive and computable closed-form formula for the solution, (3) an axiomatic justification of the solution, and (4) a generalization of the solution to games with private signals, along with an arbitration scheme that implements it. The objective is to restart research on cooperative solutions to strategic games and their applications.