Collaborative Research on Binding Agreements

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9414114 Ray This project studies the nature of binding agreements in strategic situations. A model is considered in which binding agreements can, in principle, be written among any group of agents. The project rigorously analyzes the agreements that occur in an equilibrium of free and unrestricted negotiation. At the most fundamental level, the investigators address the issue of how to conceptualize the series of negotiations that ultimately lead to the signing of an agreement. This will make an important contribution to bargaining theory because the literature on bargaining over actions of games is nonexistent. The principal focus of the research is on the question of efficiency in binding agreements. This project challenges the consensus among economists that if binding agreements can be written in the absence of informational asymmetries, then the gains from cooperation will be fully exploited. The investigators will generalize examples from their previous work of binding agreements in the presence of external effects that do not correspond to an efficient or cooperative outcome. These results arise only when there are three or more agents. The emergence of inefficiency is closely related to the assignment of property rights. This line of basic research is relevant to the Human Dimensions of Global Change because it will provide new insights and better tools for analyzing negotiations needed to reach binding environmental agreements. For example, the famous Coase Theorem was used to show that competitive markets will produce efficient agreements in the presence of pollution. The investigators' research shows that there is a breakdown of efficiency when the right to pollute is the assigned status quo.