A Dynamic Reinterpretation of Nash Bargaining With Endogenous Threats

Dilip Abreu; David Pearce

doi:10.3982/ECTA11711

A Dynamic Reinterpretation of Nash Bargaining With Endogenous Threats

Dilip Abreu, David Pearce

Research output: Contribution to journal › Article › peer-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 language	English (US)
Pages (from-to)	1641-1655
Number of pages	15
Journal	Econometrica
Volume	83
Issue number	4
DOIs	https://doi.org/10.3982/ECTA11711
State	Published - 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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10.3982/ECTA11711

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AB - 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.

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KW - Repeated games

KW - Stochastic games

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A Dynamic Reinterpretation of Nash Bargaining With Endogenous Threats

Abstract

Keywords

ASJC Scopus subject areas

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