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Bilateral Commitment

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  • Sophie Bade
  • Guillaume Haeringer
  • Ludovic Renou

    ()

Abstract

We consider non-cooperative environments in which two players have the power to commit but cannot sign binding agreements. We show that by committing to a set of actions rather than to a single action, players can implement a wide range of action profiles. We give a complete characterization of implementable profiles and provide a simple method to find them. Profiles implementable by bilateral commitments are shown to be generically inefficient. Surprisingly, allowing for gradualism (i.e., step by step commitment) does not change the set of implementable profiles.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 08/20.

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Date of creation: Jun 2008
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Handle: RePEc:lec:leecon:08/20

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Related research

Keywords: Commitment; self-enforcing; generic inefficiency; agreements; Pareto-improvement;

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References

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  1. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
  2. Oliver Hart & John Moore, 2004. "Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In," Harvard Institute of Economic Research Working Papers 2032, Harvard - Institute of Economic Research.
  3. Lockwood, B. & Thomas, J.P., 1999. "Gradualism and Irreversibility," The Warwick Economics Research Paper Series (TWERPS) 525, University of Warwick, Department of Economics.
  4. Matthew O. Jackson & Simon Wilkie, 2005. "Endogenous Games and Mechanisms: Side Payments Among Players," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 543-566.
  5. Bade, Sophie & Haeringer, Guillaume & Renou, Ludovic, 2007. "More strategies, more Nash equilibria," Journal of Economic Theory, Elsevier, vol. 135(1), pages 551-557, July.
  6. 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.
  7. Yildirim, Huseyin, 2005. "Contests with multiple rounds," Games and Economic Behavior, Elsevier, vol. 51(1), pages 213-227, April.
  8. Damme, E.E.C. van & Hurkens, S., 1998. "Endogenous Stackelberg leadership," Open Access publications from Tilburg University urn:nbn:nl:ui:12-80496, Tilburg University.
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  11. Renou, Ludovic, 2009. "Commitment games," Games and Economic Behavior, Elsevier, vol. 66(1), pages 488-505, May.
  12. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, December.
  13. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
  14. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  15. Moulin, Herve, 1984. "Dominance solvability and cournot stability," Mathematical Social Sciences, Elsevier, vol. 7(1), pages 83-102, February.
  16. Varian, Hal R., 1994. "Sequential contributions to public goods," Journal of Public Economics, Elsevier, vol. 53(2), pages 165-186, February.
  17. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 259-76, April.
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Citations

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Cited by:
  1. Rohan Dutta & Ryosuke Ishii, 2013. "Coordinating by Not Committing : Efficiency as the Unique Outcome," Cahiers de recherche 10-2013, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Frédéric Koessler & Ariane Lambert-Mogiliansky, 2010. "Committing to transparency to resist corruption," PSE Working Papers halshs-00564890, HAL.
  3. Conley, John P. & Neilson, William, 2009. "Endogenous games and equilibrium adoption of social norms and ethical constraints," Games and Economic Behavior, Elsevier, vol. 66(2), pages 761-774, July.
  4. Nie, Pu-yan, 2013. "Duopoly quality commitment," Economic Modelling, Elsevier, vol. 33(C), pages 832-842.
  5. Jianpei Li & Paul Schweinzer, 2013. "Efficiency in strategic form games: A little trust can go a long way," Discussion Papers 13/19, Department of Economics, University of York.
  6. repec:hal:wpaper:halshs-00564890 is not listed on IDEAS
  7. Heller, Yuval & Winter, Eyal, 2013. "Rule Rationality," MPRA Paper 48746, University Library of Munich, Germany.

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