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Conventional Contracts

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  • Young, H Peyton

Abstract

A conventional contract is a contract that each side of a bargain expects the other side to insist on, because it is standard and customary under the circumstances. The author considers a process of convention formation in which agents expectations evolve through repeated interactions in a large-population setting. Agents choose best replies given their knowledge of the precedents, subject to some inertia and random error in their choice behavior. Over the long run, this adaptive learning process tends to select contracts that are efficient, and egalitarian in the sense that the payoffs are centrally located on the efficiency frontier of the payoff possibility set. When the payoffs form a convex, comprehensive bargaining set, the process selects the Kalai-Smorodinsky solution. Copyright 1998 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 65 (1998)
Issue (Month): 4 (October)
Pages: 773-92

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Handle: RePEc:bla:restud:v:65:y:1998:i:4:p:773-92

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Cited by:
  1. Balafoutas, Loukas & Nikiforakis, Nikos, 2012. "Norm enforcement in the city: A natural field experiment," European Economic Review, Elsevier, vol. 56(8), pages 1773-1785.
  2. Naidu, Suresh & Hwang, Sung-Ha & Bowles, Samuel, 2010. "Evolutionary bargaining with intentional idiosyncratic play," Economics Letters, Elsevier, vol. 109(1), pages 31-33, October.
  3. Newton, Jonathan, 2012. "Coalitional stochastic stability," Games and Economic Behavior, Elsevier, vol. 75(2), pages 842-854.
  4. Tore Ellingsen & Jack Robles, 2000. "Does Evolution Solve the Hold-up Problem," Econometric Society World Congress 2000 Contributed Papers 1525, Econometric Society.
  5. Birendra K. Rai, 2006. "Evolution of Division Rules," Papers on Strategic Interaction 2006-27, Max Planck Institute of Economics, Strategic Interaction Group.
  6. Carlos Alós-Ferrer & Fei Shi, 2012. "Imitation with asymmetric memory," Economic Theory, Springer, vol. 49(1), pages 193-215, January.
  7. Opolot, Daniel & Azomahou, Theophile, 2012. "Learning and convergence in networks," MERIT Working Papers 074, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  8. Cui, Peng-Bi & Wu, Zhi-Xi, 2013. "Impact of conformity on the evolution of cooperation in the prisoner’s dilemma game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(6), pages 1500-1509.
  9. Nikiforakis, Nikos & Noussair, Charles N. & Wilkening, Tom, 2012. "Normative conflict and feuds: The limits of self-enforcement," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 797-807.
  10. Binmore, Ken & Samuelson, Larry & Young, Peyton, 2003. "Equilibrium selection in bargaining models," Games and Economic Behavior, Elsevier, vol. 45(2), pages 296-328, November.
  11. Hwang, Sung-Ha & Newton, Jonathan, 2014. "A classification of bargaining solutions by evolutionary origin," Working Papers 2014-02, University of Sydney, School of Economics.
  12. H. Peyton Young, 2007. "Social Norms," Economics Series Working Papers 307, University of Oxford, Department of Economics.
  13. Kevin Hasker, 2004. "The Emergent Seed : Simplifying the Analysis of Dynamic Evolution," Departmental Working Papers 0406, Bilkent University, Department of Economics.
  14. Maruta, Toshimasa & Okada, Akira, 2012. "Stochastically stable equilibria in n-person binary coordination games," Mathematical Social Sciences, Elsevier, vol. 63(1), pages 31-42.
  15. Opolot, Daniel & Azomahou, Theophile, 2012. "Learning and convergence in networks," MERIT Working Papers 074, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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