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Loss of commitment? An evolutionary analysis of Bagwell's example

  • Oechssler, Jörg
  • Schlag, Karl H.

In a recent paper Bagwell (1995) pointed out that only the Cournot outcome, but not the Stackelberg outcome, can be supported by a pure Nash equilibrium when actions of the Stackelberg leader are observed with the slightest error. The Stackelberg outcome, however, remains close to the outcome of a mixed equilibrium. We compare the predictions in various classes of evolutionary and learning processes in this game. Only the continuous best response dynamic uniquely selects the Stackelberg outcome under noise. All other dynamics analyzed allow for the Cournot equilibrium to be selected. In typical cases Cournot is the unique long run outcome even for vanishing noise in the signal.

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Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 1997,39.

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Date of creation: 1997
Date of revision:
Handle: RePEc:zbw:sfb373:199739
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  1. R. Cressman, K.H. Schlag, 1995. "The Dynamic (In)Stability of Backwards Induction," Discussion Paper Serie B 347, University of Bonn, Germany.
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  12. Samuelson, Larry & Zhang, Jianbo, 1992. "Evolutionary stability in asymmetric games," Journal of Economic Theory, Elsevier, vol. 57(2), pages 363-391, August.
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