Renegotiation-proof multilateral enforcement

With S. Nageeb Ali and David Yilin Yang

Abstract: In multilateral enforcement, a player who cheats on one partner is punished by many partners. But renegotiation might subvert the threat of multilateral punishment. We consider renegotiation proofness in multilateral enforcement games with public monitoring, and also introduce the notion of “bilateral renegotiation proofness” for games with private monitoring. With public monitoring, renegotiation proofness does not impede multilateral enforcement at all; even with private monitoring, bilateral renegotiation imposes no cost when a principal interacts with many agents who can communicate with each other. For community enforcement games with private monitoring, players’ ability to renegotiate bilaterally has some cost, but this cost is relatively small in large communities.

Working paper 7/31/2016