Self-enforcing agreement

A self-enforcing agreement is an agreement or contract between two parties that is enforced only by those two parties; a third party cannot enforce or interfere with the agreement. This agreement stands so long the parties believe the agreement is mutually beneficial and the agreement is not breached by either party.^[1]

In game theory, games in which cooperative behaviour can only be enforced through self-enforcing agreements are called a non-cooperative games, whereas games allowing strategies relying on external enforcement are called cooperative games. Nash equilibrium is the most common kind of a self-enforcing agreement.

References

1. A Theory of Self-Enforcing Agreements L.G. Tesler, University of Chicago