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Bilateral commitment

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Author Info
Bade, Sophie
Haeringer, Guillaume
Renou, Ludovic

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Abstract

We consider non-cooperative environments in which two players have the power to gradually and unilaterally rule out some of their actions. Formally, we embed a strategic-form game into a multi-stage game, in which players can restrict their action spaces in all but the final stage, and select among the remaining actions in the last stage. We say that an action profile is implementable by commitment if this action profile is played in the last stage of a subgame-perfect equilibrium path. We provide a complete characterization of all implementable action profiles and a simple method to find them. It turns out that the set of implementable profiles does not depend on the length of the commitment process. We show, furthermore, that commitments can have social value in the sense that in some games there are implementable action profiles that dominate all Nash equilibria of the original game.

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Publisher Info
Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 4 (July)
Pages: 1817-1831
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Handle: RePEc:eee:jetheo:v:144:y:2009:i:4:p:1817-1831

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Web page: http://www.elsevier.com/locate/inca/622869

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Related research
Keywords: Commitment Self-enforcing Pareto-improvement;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, December.
    Other versions:
  3. Bernheim, B Douglas & Whinston, Michael D, 1998. "Incomplete Contracts and Strategic Ambiguity," American Economic Review, American Economic Association, vol. 88(4), pages 902-32, September. [Downloadable!] (restricted)
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  4. Amir, Rabah & Grilo, Isabel, 1999. "Stackelberg versus Cournot Equilibrium," Games and Economic Behavior, Elsevier, vol. 26(1), pages 1-21, January. [Downloadable!] (restricted)
  5. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April. [Downloadable!] (restricted)
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  6. Matthew O. Jackson & Simon Wilkie, 2005. "Endogenous Games and Mechanisms: Side Payments Among Players," Review of Economic Studies, Blackwell Publishing, vol. 72(2), pages 543-566, 04. [Downloadable!] (restricted)
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  7. Ben Lockwood & Jonathan P. Thomas, 1999. "Gradualism and Irreversibility," CSGR Working papers series 28/99, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
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  8. Romano, Richard & Yildirim, Huseyin, 2005. "On the endogeneity of Cournot-Nash and Stackelberg equilibria: games of accumulation," Journal of Economic Theory, Elsevier, vol. 120(1), pages 73-107, January. [Downloadable!] (restricted)
  9. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February. [Downloadable!] (restricted)
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  10. Moulin, Herve, 1984. "Dominance solvability and cournot stability," Mathematical Social Sciences, Elsevier, vol. 7(1), pages 83-102, February. [Downloadable!] (restricted)
  11. Sophie Bade & Guillaume Haeringer & Ludovic Renou, 2005. "More strategies, more Nash equilibria," Game Theory and Information 0502001, EconWPA. [Downloadable!]
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  12. Harris, Christopher & Reny, Philip & Robson, Arthur, 1995. "The Existence of Subgame-Perfect Equilibrium in Continuous Games with Almost Perfect Information: A Case for Public Randomization," Econometrica, Econometric Society, vol. 63(3), pages 507-44, May. [Downloadable!] (restricted)
  13. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 259-76, April. [Downloadable!] (restricted)
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  15. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May. [Downloadable!] (restricted)
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