Jan 20, 2016 Filed in: Working papers
With S. Nageeb Ali and David Yilin Yang
Abstract: In a multilateral enforcement regime, a player who cheats on one partner is punished by many partners. But if partners can renegotiate in private, they can subvert the power of the multilateral punishment. We introduce a new notion of "bilateral renegotiation proofness" that applies to multilateral games with private monitoring. For symmetric networked environments, we characterize an optimal bilateral renegotiation proof equilibrium. While players’ ability to renegotiate bilaterally is indeed socially costly, it is perhaps not as costly as one might expect. In densely connected communities, the proportional cost imposed by bilateral renegotiation declines as the number of participants grows, and vanishes in the limit.
Working paper 1/10/2016
(New version coming in May 2016)
Feb 22, 2016 Filed in: Publications
With S. Nageeb Ali
Accepted for publication in The American Economic Review
Abstract: Many communities rely upon ostracism to enforce cooperation: if an individual shirks in one relationship, her innocent neighbors share information about her guilt in order to shun her, while continuing to cooperate among themselves. However, a strategic victim may herself prefer to shirk, rather than report others' deviations truthfully. If guilty players are to be permanently ostracized, then such deviations are so tempting that cooperation in any relationship is bounded by what the partners could obtain through bilateral enforcement. Ostracism can improve upon bilateral enforcement if tempered by forgiveness, through which guilty players are eventually readmitted to cooperative society.
Working paper version 2/8/2016
Apr 21, 2016 Filed in: Working papers
With Heidi Gjertsen, Theodore Groves, Eduard Niesten, Dale Squires, and Joel Watson
Abstract: We examine the structure and performance of conservation agreements, which are used across the world to protect natural resources. Key elements of these agreements are: (1) they are ongoing arrangements between a local community and an outside party, typically a non-governmental organization (NGO); (2) they feature payments in exchange for conservation services; (3) the prospects for success depend on the NGO engaging in costly monitoring to detect whether the community is foregoing short-term gains to protect the resource; (4) lacking a strong external enforcement system, they rely on self-enforcement; and (5) the parties have the opportunity to renegotiate at any time. We provide a novel model that contains these ingredients and we apply the model to assess the workings of real conservation agreements, using three case studies as representative examples. We characterize equilibrium play (including how punishments and rewards are structured) and we show how the parties' relative bargaining powers affect their ability to sustain cooperation over time. The model captures important features of real conservation agreements and identifies some of the features required for successful agreements.
Working paper 4/21/2016
Jan 10, 2015 Filed in: Publications
With Kareen Rozen
Published in The American Economic Journal: Microeconomics, 6(4):326–361, November 2014
Abstract: We study optimal contracting in team settings where agents have many opportunities to shirk, task-level monitoring is needed to provide useful incentives, and it is difficult to write individual performance into formal contracts. Incentives are provided informally, using wasteful sanctions like guilt and shame, or slowed promotion. These features give rise to optimal contracts with underperformance, forgiving sanctioning schemes, and endogenous supervision structures. Agents optimally take on more assigned tasks than they intend to complete, leading to the concentration of supervisory responsibility in the hands of one or two agents.
Published article (restricted access)
Published article and Supplementary Appendix (free access)
Nov 13, 2013 Filed in: Publications
With Joel Watson
Published in Econometrica, 81(6):2303–2350, November 2013.
Abstract: This paper proposes a new approach to equilibrium selection in repeated games with transfers, supposing that in each period the players bargain over how to play. Although the bargaining phase is cheap talk (following a generalized alternating-offer protocol), sharp predictions arise from three axioms. Two axioms allow the players to meaningfully discuss whether to deviate from their plan; the third embodies a “theory of disagreement”—that play under disagreement should not vary with the manner in which bargaining broke down. Equilibria that satisfy these axioms exist for all discount factors and are simple to construct; all equilibria generate the same welfare. Optimal play under agreement generally requires suboptimal play under disagreement. Whether patient players attain efficiency depends on both the stage game and the bargaining protocol. The theory extends naturally to games with imperfect public monitoring and heterogeneous discount factors, and yields new insights into classic relational contracting questions.
May 06, 2006 Filed in: Publications
With Sameer Tilak and Tony Fountain
Published in the Proceedings of the Workshop on Stochasticity in Distributed Systems (StoDiS'05), San Jose, CA, December 19, 2005
Abstract: When two sponsoring organizations, working towards separate goals, employ wireless sensor networks for a finite period of time, it can be efficiency-enhancing for the sponsors to program their sensors to cooperate. But if each sensor privately knows whether it can provide a favor in any particular period, and the sponsors cannot contract on ex post payments, then no favors are performed in any Nash equilibrium. Allowing the sponsors to contract on ex post payments, we construct equilibria based on the exchange of "tokens" that yield significant cooperation and increase expected sponsor payoffs. Increasing the sponsors' liability is beneficial because it enables them to use more tokens.
Working paper 5/22/2006 (newer and better than the StoDiS version)