FEEM working papers "Note di lavoro" series
2006 .075

Bilateral Commitment


Authors: Guillaume Haeringer, Sophie Bade, Ludovic Renou
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Journal
Keywords: Commitment,Self-enforcing,Treaties,Inefficiency,Agreements,Pareto-improvement
JEL n.: C70,C72,H87
JEL: Journal of Economic Theory
Pages: Vol. 144, Issue 4, pp. 1817-1831
Date: 07/2009

Abstract

We consider non-cooperative environments in which two players have the power to commit but cannot sign binding agreements. We show that by committing to a set of actions rather than to a single action, players can implement a wide range of action profiles. We give a complete characterization of implementable profiles and provide a simple method to find them. Profiles implementable by bilateral commitments are shown to be generically inefficient. Surprisingly, allowing for gradualism (i.e., step by step commitment) does not change the set of implementable profiles.

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