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Bilateral Commitment

  • Sophie Bade

    ()

    (Department of Economics, Penn State University)

  • Guillaume Haeringer

    ()

    (Department of Economics, Universitat Autonoma de Barcelona)

  • Ludovic Renou

    (School of Economics, University of Adelaide)

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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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2006-07.pdf
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Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2006-07.

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Date of creation: 2006
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Handle: RePEc:adl:wpaper:2006-07
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