Various imperfections in existing market systems prevent the free market from serving as a truly efficient allocation mechanism, but optimization of economic activities provides an effective remedial measure. Cooperative optimization claims that socially optimal and individually rational solutions to decision problems involving strategic action over time exist. To ensure that cooperation will last throughout the agreement period, however, the stringent condition of subgame consistency is required.

This textbook presents a study of subgame consistent economic optimization, developing game-theoretic optimization techniques to establish the foundation for an effective policy menu to tackle the suboptimal behavior that the conventional market mechanism fails to resolve.

David W. K. Yeung is Distinguished Research Professor and Head of Business Administration at Hong Kong Shue Yan University, and the Kantorovich Research Chair in Stochastic Differential Games and co-director of the Centre of Game Theory at Saint Petersburg State University. He is also Distinguished Honorary Professor of Qingdao University - an honor he received along with Nobel laureates John Nash, Reinhard Selten, and Robert Aumann. Yeung’s main areas of research are game theory, optimization, and stochastic processes. He serves as Managing Editor of International Game Theory Review, Guest Editor of Annals of Operations Research, Associate Editor of Dynamic Games and Applications, and Editorial Board Member of Mathematical Game Theory & Applications. Yeung has published extensively in world-renowned science journals, in particular, Automatica, Journal of Optimization Theory and Applications, Annals of Operations Research, European Journal of Operational Research, International Game Theory Review, and Mathematical Biosciences.