GROUP RATIONALITY, UTILITARIANISM, AND ESCHER WATERFALL

Consider a game in which each player chooses between two strategies, H and S, and all players have the same payoff function. This could be, for instance, because ail players are moral creatures committed to enh ancing a common cause. Is it possible that in this game if each player chooses S instead of H (with other players' strategy choices held con stant), he (hence, everybody) is better off but he is worse off if eve rybody chooses S? It is shown that the answer to this is yes, if the n umber of players is infinite (even if only countably so). This is demo nstrated by constructing a paradoxical game referred to here as the '' waterfall'' paradox. Some implications of the paradox for models of ec onomics are discussed. Journal of Economic Literature Classification N umbers: C70, D71. (C) 1994 Academic Press, Inc.