Errors of I and II Types in Economic Exchanges with Third Party Enforcement

Coordination and distribution effects in economic exchanges with third party enforcement due to errors of I and II types are at the center of the article. Based on idea of opportunity for equilibrium Pareto-improvement in one shot prisoners’ dilemma game by third-party enforcer it has been shown not only constraints on cost of enforcement services but consequences of errors of I and II types both non-discriminatory and discriminatory cases. Discrimination by third party is analyzed not only from the players direct payment for services perspective but from fines, compensations and errors probabilities too. Errors of I and II types in rules enforcement are analyzed in relation to analogous errors in rules design with some implication for antimonopoly issues.