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Starting Small and Commitment

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Author Info
Joel Watson (Dept. Economics, UCLA, San Diego)

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Abstract

I study 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. 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 [11]).

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File URL: http://cowles.econ.yale.edu/P/cd/d12a/d1217.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1217.

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Length: 23 pages
Date of creation: May 1999
Date of revision:
Handle: RePEc:cwl:cwldpp:1217

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Find related papers by JEL classification:
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

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. Myerson, Roger B, 1983. "Mechanism Design by an Informed Principal," Econometrica, Econometric Society, vol. 51(6), pages 1767-97, November. [Downloadable!] (restricted)
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  2. James E. Rauch & Joel Watson, 1999. "Starting Small in an Unfamiliar Environment," NBER Working Papers 7053, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Hart, Oliver D & Tirole, Jean, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Blackwell Publishing, vol. 55(4), pages 509-40, October. [Downloadable!] (restricted)
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  4. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Blackwell Publishing, vol. 52(4), pages 557-73, October. [Downloadable!] (restricted)
  5. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March. [Downloadable!] (restricted)
  6. 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!]
  7. Crawford, Vincent P, 1985. "Efficient and Durable Decision Rules: A Reformulation," Econometrica, Econometric Society, vol. 53(4), pages 817-35, July. [Downloadable!] (restricted)
  8. 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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  9. Watson, Joel, 1999. "Starting Small and Renegotiation," Journal of Economic Theory, Elsevier, vol. 85(1), pages 52-90, March. [Downloadable!] (restricted)
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  10. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January. [Downloadable!] (restricted)
  11. Cramton, Peter C. & Palfrey, Thomas R., 1990. "Ratifiable Mechanisms: Learning from Disagreement," Working Papers 731, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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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. Takako Fujiwara-Greve & Masahiro Okuno-Fujiwara, 2006. "Voluntarily Separable Prisoner's Dilemma," CIRJE F-Series CIRJE-F-415, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  2. repec:bep:thecon:v:1:y:2001:i:contributions/1/1:p:1030-1030 is not listed on IDEAS
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  3. Harun Onder, 2009. "Starting Small in Free Trade Agreements," Working Papers 0905, Florida International University, Department of Economics. [Downloadable!]
  4. 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!]
  5. Atila Abdulkadiroglu & Kyle Bagwell, 2005. "Trust, reciprocity and favors in cooperative relationships," Discussion Papers 0405-22, Columbia University, Department of Economics. [Downloadable!]
  6. 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)
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  7. Rafael Rob & Huanxing Yang, 2006. "Long Term Relationships as Safeguards," Levine's Working Paper Archive 618897000000001039, David K. Levine. [Downloadable!]
  8. Susan Athey & Kyle Bagwell, 2007. "Collusion with Persistent Cost Shocks," Levine's Bibliography 321307000000000898, UCLA Department of Economics. [Downloadable!]
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  9. Luis Araujo & Emanuel Ornelas, 2005. "Trust-Based Trade," IBMEC RJ Economics Discussion Papers 2005-08, Economics Research Group, IBMEC Business School - Rio de Janeiro. [Downloadable!]
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