Conditioning Institutions and Renegotiation

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Conditioning Institutions and Renegotiation

Author Info

Garey Ramey (UC San Diego)
Joel Watson (UC San Diego)

Abstract

We propose a theory of contracting in long-term relationships, emphasizing the role of social institutions in conditioning players' joint selection of equilibria. Players adopt a social conditioning system in order to place boundaries on their recurrent negotiation and thereby sustain a desirable joint selection of equilibrium. Social conventions have value because players cannot freely reinterpret the labels attached to histories, in contrast to labels that the players might assign internally. We present examples of social conventions that are useful for sustaining cooperative interaction. Our model combines an explicit bargaining technology with a renegotiation concept, coherent equilibrium, that builds on internal consistency. Coherent equilibria exist in general and, for an important class of games, induce unique outcomes.

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number 1999-09.

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Date of creation: 01 Apr 2000
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Handle: RePEc:cdl:ucsdec:1999-09

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Bergin James & MacLeod W. Bentley, 1993. "Efficiency and Renegotiation in Repeated Games," Journal of Economic Theory, Elsevier, vol. 61(1), pages 42-73, October. [Downloadable!] (restricted)
Other versions:
- MacLeod, B.W. & Bergin, J., 1991. "Efficiency and Renegotiation in Repeated Games," Cahiers de recherche 9118, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- James Bergin & Bentley MacLeod, 1989. "Efficiency and Renegotiation in Repeated Games," Working Papers 752, Queen's University, Department of Economics.
- MacLeod, B.W. & Bergin, J., 1991. "Efficiency and Renegotiation in Repeated Games," Cahiers de recherche 9118, Universite de Montreal, Departement de sciences economiques.
- Bergin, J. & Macleod, B., 1989. "Eficiency And Renegotiation In Repeated Games," UFAE and IAE Working Papers 121-89, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
David G. Pearce, 1991. "Repeated Games: Cooperation and Rationality," Cowles Foundation Discussion Papers 983, Cowles Foundation, Yale University. [Downloadable!]
Greif, Avner & Milgrom, Paul & Weingast, Barry R, 1994. "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 745-76, August. [Downloadable!] (restricted)
Wouter den Haan & Garey Ramey & Joel Watson, 1999. "Liquidity Flows and Fragility of Business Enterprises," NBER Working Papers 7057, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Wouter J. den Haan & Garey Ramey & Joel Watson, 1999. "Liquidity Flows and Fragility of Business Enterprises," University of California at San Diego, Economics Working Paper Series 99-07, Department of Economics, UC San Diego. [Downloadable!]
- Wouter J. den Haan & Garey Ramey & Joel Watson, 1999. "Liquidity Flows and Fragility of Business Enterprises," Cowles Foundation Discussion Papers 1215, Cowles Foundation, Yale University. [Downloadable!]
- Wouter den Haan & Garey Ramey & Joel Watson, 2000. "Liquidity Flows and Fragility of business Enterprises," University of California at San Diego, Economics Working Paper Series 99-07R, Department of Economics, UC San Diego. [Downloadable!]
- Wouter den Haan & Garey Ramey & Joel Watson, 2000. "Liquidity Flows and Fragility of Business Enterprises," University of California at San Diego, Economics Working Paper Series 1999-07R, Department of Economics, UC San Diego. [Downloadable!]
- den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2003. "Liquidity flows and fragility of business enterprises," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1215-1241, September. [Downloadable!] (restricted)
- Wouter Denhaan & Garey Ramey & Joel Watson, 1999. "FORTRAN code for Liquidity Flows and Fragility of Business Enterprises," QM&RBC Codes 58, Quantitative Macroeconomics & Real Business Cycles. [Downloadable!]
Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December. [Downloadable!] (restricted)
Ray Debraj, 1994. "Internally Renegotiation-Proof Equilibrium Sets: Limit Behavior with Low Discounting," Games and Economic Behavior, Elsevier, vol. 6(1), pages 162-177, January. [Downloadable!] (restricted)
van Damme,Eric, 1986. "Renegotiation-proof equilibria in repeated Prisoner`s dilemma," Discussion Paper Serie A 84, University of Bonn, Germany.
Other versions:
- van Damme, Eric, 1989. "Renegotiation-proof equilibria in repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 47(1), pages 206-217, February. [Downloadable!] (restricted)
Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 63-80, January. [Downloadable!] (restricted)
Matsushina, Hitoshi, 1990. "Long-term partnership in a repeated prisoner's dilemma with random matching," Economics Letters, Elsevier, vol. 34(3), pages 245-248, November. [Downloadable!] (restricted)
Bendor, Jonathan & Mookherjee, Dilip, 1990. "Norms, Third-Party Sanctions, and Cooperation," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(1), pages 33-63, Spring.
Asheim, Geir B., 1991. "Extending renegotiation-proofness to infinite horizon games," Games and Economic Behavior, Elsevier, vol. 3(3), pages 278-294, August. [Downloadable!] (restricted)
Other versions:
- Asheim, G.B., 1988. "Extending Renegotiation-Proofness To Infinite Horizon Games," Papers 16-88, Norwegian School of Economics and Business Administration-.
Garey Ramey & Joel Watson, 1999. "Contractual Intermediaries," University of California at San Diego, Economics Working Paper Series 97-26r, Department of Economics, UC San Diego. [Downloadable!]
Other versions:
- Garey Ramey & Joel Watson, 1999. "Contractual Intermediaries," Cowles Foundation Discussion Papers 1235, Cowles Foundation, Yale University. [Downloadable!]
- Garey Ramey & Joel Watson, 2002. "Contractual Intermediaries," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(2), pages 362-384, October.
Ramey, Garey & Watson, Joel, 1997. "Contractual Fragility, Job Destruction, and Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 873-911, August.
Other versions:
- Garey Ramey & Joel Watson, 1996. "Contractual Fragility, Job Destruction and Business Cycles," University of California at San Diego, Economics Working Paper Series 96-22, Department of Economics, UC San Diego. [Downloadable!]
Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June. [Downloadable!] (restricted)
Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. [Downloadable!] (restricted)
Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December. [Downloadable!] (restricted)
Other versions:
- Joseph Farrell and Eric Maskin., 1987. "Renegotiation in Repeated Games," Economics Working Papers 8759, University of California at Berkeley.

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