Starting Small and Commitment
AbstractI study a model of a long-term partnership with two-sided incomplete information. The partners jointly determine the stakes of their relationahip and individually decide whether to cooperate with or betray each other over time. I characterize the extremal -- interim incentive efficient -- equilibria. In these equilibria, the partners generally "start small," with the level of interaction growing over time. The types of players separate quickly. Further, cooperation between "good" types is viable regardless of how pessimistic the players are about each other initially. The quick nature of separation in an extremal equilibrium contrasts with the outcome selected by a strong renegotiation criterion (as studied in Watson (1999)).
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Bibliographic InfoPaper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt37p340fc.
Date of creation: 01 Apr 1999
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Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
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