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Starting Small and Renegotiation

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Author Info
Joel Watson

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Abstract

This paper develops a model of a long-term partnership with two-sided incomplete information. The partners jointly determine the stakes of their relationship and individually decide whether to cooperate with or betray each other over time. An equilibrium in which the partners "start small" is studied and shown to be uniquely selected by a strong renegotiation condition. The characterization offers new insights on how relationships change as parties learn about each other and on qualitative differences between situations of one- and two-sided incomplete information. In particular, stakes rise and types separate faster in the two-sided case. The equilibrium is shown to have other intuitive properties as well.

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Publisher Info
Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number 97-17.

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Date of creation: Jul 1997
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Handle: RePEc:cdl:ucsdec:97-17

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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.:
  1. Crawford, Vincent P, 1985. "Efficient and Durable Decision Rules: A Reformulation," Econometrica, Econometric Society, vol. 53(4), pages 817-35, July. [Downloadable!] (restricted)
  2. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. James E. Rauch & Joel Watson, 1999. "Starting Small in an Unfamiliar Environment," NBER Working Papers 7053, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. W. Bentley MacLeod, 2006. "Reputations, Relationships and the Enforcement of Incomplete Contracts," IZA Discussion Papers 1978, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. repec:bep:thecon:v:1:y:2001:i:contributions/1/1:p:1030-1030 is not listed on IDEAS
  4. Joel Watson, 1999. "Starting Small and Commitment," University of California at San Diego, Economics Working Paper Series 1999-08, Department of Economics, UC San Diego. [Downloadable!]
  5. Takashi Kamihigashi & Taiji Furusawa, 2007. "Global Dynamics in Infinitely Repeated Games with Additively Separable Continuous Payoffs," Discussion Paper Series 210, Research Institute for Economics & Business Administration, Kobe University. [Downloadable!]
  6. Felipe Balmaceda, 2004. "Network Formation and Cooperation," Econometric Society 2004 Latin American Meetings 208, Econometric Society. [Downloadable!]
  7. J Rauch & Joel Watson, 1999. "Starting Small in an Unfamiliar Environment," University of California at San Diego, Economics Working Paper Series 1996-28R, Department of Economics, UC San Diego. [Downloadable!]
  8. Joel Watson, 1999. "Starting Small and Commitment," Cowles Foundation Discussion Papers 1217, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  9. Luis Cabral & Ali Hortacsu, 2006. "The Dynamics of Seller Reputation: Evidence from eBay," Working Papers 06-32, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  10. Atila Abdulkadiroglu & Kyle Bagwell, 2005. "Trust, reciprocity and favors in cooperative relationships," Discussion Papers 0405-22, Columbia University, Department of Economics. [Downloadable!]
  11. repec:bep:thetop:v:2:y:2002:i:1:p:1045-1045 is not listed on IDEAS
  12. Luis Cabral & Ali Hortacsu, 2004. "The Dynamics of Seller Reputation: Theory and Evidence from eBay," NBER Working Papers 10363, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. repec:att:wimass:19199818 is not listed on IDEAS
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