Renegotiation and Bargaining in Dynamic Games

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This project addresses a neglected but crucial area of research in the theory of strategic dynamics, i.e., renegotiation in repeated games. Renegotiation and bargaining power are combined in a unified, coherent theory. Much of the project is concerned with providing clean characterizations which make the theory tractable in applied economic problems. Both the formulation of the appropriate definitions and the characterizations become progressively more challenging as more complicated supergames are studied. The project gives definitions and conjectured results for asymmetric strictly repeated games and for some dynamic and stochastic games. This is extremely important research because it corrects a major flaw in models of repeated games and repeated game models are widely used in macro theory, industrial organization, international trade and many other areas of economic theory. The validity of repeated game models depend on the credibility of the agreements reached by the players. If players think they can escape punishment for violating agreements by renegotiating the agreement after they violate it, then they no longer have an incentive to abide by the agreements. Therefore, a model of repeated games without a theory of renegotiation is flawed because many different outcomes other than the one agreed upon are possible.