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Implementing the Nash Program in Stochastic Games

Author

Listed:
  • Dilip Abreu

    (Princeton University)

  • David Pearce

    (New York University)

Abstract

Nash' noncooperative and cooperative foundations for bargaining with threats are reinterpreted to achieve equilibrium selection in infinitely repeated two player games. The analysis is then extended to stochastic games, where players' choices affect the state transition matrix. Sufficient conditions on the exogenous structure of the game are provided that ensure a unique division of surplus in the stochastic game, supported by both an axiomatic and a noncooperative analysis. Some comparative dynamics results for simple classes of games illustrate the dynamic programming principles governing how bargaining power in a subgame is transferred to the preceding period, and affects behavior in that earlier period. An example illustrates the surprising potential for a bargainer to extort resources from an apparently stronger competitor.

Suggested Citation

  • Dilip Abreu & David Pearce, 2013. "Implementing the Nash Program in Stochastic Games," Working Papers 1479, Princeton University, Department of Economics, Econometric Research Program..
    • Handle: RePEc:pri:metric:wp053_2013_abreu_pearce_implementing-the-nash-program-in-stochastic-games.pdf
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    File URL: http://detc.princeton.edu/wp-content/uploads/2016/11/wp053_2013_Abreu_Pearce_Implementing-the-Nash-Program-in-Stochastic-Games.pdf
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    More about this item

    Keywords

    game theory; games; Nash; bargains; competition;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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