Incentive Based Equilibrium and Applications

In this paper, we shall provide relevant formulations and examples to show that Incentive based equilibrium is desirable in many games applications. This is more so with the development and deployment of Internet even though these games may be performed only once. We shall also propose a novel scheme to properly allocate the enlarged total "pie", which is made possible by the incentive based equilibrium, among the players. Moreover, the proposal allocation scheme is extended to the Pareto optimality. Our Pareto optimal allocation scheme has an attractive feature, i.e. each player has an incentive to enlarge his/her capacity because he/she can be better off.