# Maximizing Social Welfare with Side Payments

arXiv: https://arxiv.org/abs/2508.07147 · HTML: https://mlsanity.com/paper/2508.07147/

## Key facts

- Cited by 2 papers in the map (data through 14 Oct 2026).
- First posted on arXiv 10 Aug 2025.

## Built on by (most cited first, 2 of 2)

- [CoopEval: Benchmarking Cooperation-Sustaining Mechanisms and LLM Agents in Social Dilemmas](https://mlsanity.com/paper/2604.15267/) (2026)
- [From Certain Doom to Survival: Agent-Driven Self-Governance in LLM Agent Societies](https://mlsanity.com/paper/2609.22600/) (2026)

## Abstract (arXiv)

We examine normal-form games in which players may pre-commit to outcome-contingent transfers before choosing their actions. In the one-shot version of this model, Jackson and Wilkie showed that side contracting can backfire: even a game with a Pareto-optimal Nash equilibrium can devolve into inefficient equilibria once unbounded, simultaneous commitments are allowed. The root cause is a prisoner's dilemma effect, where each player can exploit her commitment power to reshape the equilibrium in her favor, harming overall welfare. To circumvent this problem we introduce a staged-commitment protocol. Players may pledge transfers only in small, capped increments over multiple rounds, and the phase continues only with unanimous consent. We prove that, starting from any finite game Gamma with a non-degenerate Nash equilibrium vecσ, this protocol implements every welfare-maximizing payoff profile that strictly Pareto-improves vecσ. Thus, gradual and bounded commitments restore the full efficiency potential of side payments while avoiding the inefficiencies identified by Jackson and Wilkie.