A Dynamic Reinterpretation of Nash Bargaining With Endogenous Threats

Dilip Abreu, David Pearce

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

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

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

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

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