Renegotiation-Proof Equilibria: Collective Rationality and Intertemporal Cooperation
Abstract
Cooperation in repeated games relies on the possibility that equilibrium play following some t-period history depends on more than simply the structure of the game remaining after the first t periods, that structure being always the same. In a nondegenerate theory of renegotiation, what a player expects, and the statements he finds credible at the end of period t must be affected by the history that has transpired, and perhaps by the implicit agreement that was in force. The solution concept proposed in this paper acknowledges both these influences, while imposing a certain stationarity on beliefs regarding what renegotiation options are available: renegotiation to an equilibrium sigma will not take place if, after some history h, the continuation equilibrium sigma given h is itself vulnerable to renegotiation to sigma (in the sense that all players prefer sigma to sigma given h).