Starting Small and Commitment
I 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)).
|Date of creation:||01 Apr 1999|
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- Oliver D. Hart & Jean Tirole, 1987.
"Contract Renegotiation and Coasian Dynamics,"
442, Massachusetts Institute of Technology (MIT), Department of Economics.
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- Rauch, J E & Watson, Joel, 1999. "Starting Small in an Unfamiliar Environment," University of California at San Diego, Economics Working Paper Series qt4rp145hc, Department of Economics, UC San Diego.
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495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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"Ratifiable Mechanisms: Learning from Disagreement,"
731, California Institute of Technology, Division of the Humanities and Social Sciences.
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- 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.
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