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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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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Keywords: Commitment; self-enforcing; generic inefficiency; agreements; Pareto-improvement;

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References

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  1. B. Douglas Bernheim & Michael D. Whinston, 1997. "Incomplete Contracts and Strategic Ambiguity," Harvard Institute of Economic Research Working Papers 1787, Harvard - Institute of Economic Research.
  2. Martin J Osborne & Ariel Rubinstein, 2009. "A Course in Game Theory," Levine's Bibliography 814577000000000225, UCLA Department of Economics.
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  6. Oliver Hart & John Moore, 2004. "Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In," NBER Working Papers 10397, National Bureau of Economic Research, Inc.
  7. Damme, E.E.C. van & Hurkens, J.P.M., 1996. "Endogenous Stackelberg Leadership," Discussion Paper 1996-115, Tilburg University, Center for Economic Research.
  8. Lockwood, B. & Thomas, J.P., 1999. "Gradualism and Irreversibility," The Warwick Economics Research Paper Series (TWERPS) 525, University of Warwick, Department of Economics.
  9. Armo Gomes & Philippe Jehiel, 2001. "Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies," Penn CARESS Working Papers 76ff153ae29996d16c454e473, Penn Economics Department.
  10. Bade, Sophie & Haeringer, Guillaume & Renou, Ludovic, 2007. "More strategies, more Nash equilibria," Journal of Economic Theory, Elsevier, vol. 135(1), pages 551-557, July.
  11. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-80, January.
  12. Renou, Ludovic, 2009. "Commitment games," Games and Economic Behavior, Elsevier, vol. 66(1), pages 488-505, May.
  13. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  14. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 259-76, April.
  15. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
  16. 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.
  17. Varian, Hal R., 1994. "Sequential contributions to public goods," Journal of Public Economics, Elsevier, vol. 53(2), pages 165-186, February.
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Citations

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Cited by:
  1. 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.
  2. Heller, Yuval & Winter, Eyal, 2013. "Rule Rationality," MPRA Paper 48746, University Library of Munich, Germany.
  3. Nie, Pu-yan, 2013. "Duopoly quality commitment," Economic Modelling, Elsevier, vol. 33(C), pages 832-842.
  4. repec:hal:wpaper:halshs-00564890 is not listed on IDEAS
  5. Frédéric Koessler & Ariane Lambert-Mogiliansky, 2010. "Committing to transparency to resist corruption," PSE Working Papers halshs-00564890, HAL.
  6. 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.
  7. 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.

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