A Dynamic Reinterpretation of Nash Bargaining With Endogenous Threats

Dilip Abreu, David Pearce

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper concerns the two-stage game introduced in Nash (1953). It formalizes a suggestion made (but not pursued) by Nash regarding equilibrium selection in that game, and hence offers an arguably more solid foundation for the "Nash bargaining with endogenous threats" solution. Analogous reasoning is then applied to an infinite horizon game to provide equilibrium selection in two-person repeated games with contracts. In this setting, issues about enforcement of threats are much less problematic than in Nash's static setting. The analysis can be extended to stochastic games with contracts.

    Original languageEnglish (US)
    Pages (from-to)1641-1655
    Number of pages15
    JournalEconometrica
    Volume83
    Issue number4
    DOIs
    StatePublished - Jul 1 2015

    Keywords

    • Contracts
    • Endogenous threats
    • Equilibrium selection
    • Nash bargaining
    • Repeated games
    • Stochastic games

    ASJC Scopus subject areas

    • Economics and Econometrics

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