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Commitment and Observability in an Economic Environment

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  • Bhaskar, V

Abstract

Bagwell (1995) argues that commitment in undermined by the slightest imperfectness in observation. Guth, Ritzberger & Kirchsteiger (1998) question this assertion: for any finite leader-follower game, with arbitrary many players in each role and generic payoffs, they show that there always exists a subgame perfect equilibrium outcome that is accessible, i.e. it can be approximated by the outcome of a mixed equilibrium of the game with imperfect observation. We show that accessibility fails in a class of games played in economic environments, where the payoffs to commitment actions depend upon prices set by other agents, prices being chosen from a continuum. Accessibility requires either that commitment is not required or that the price setting agents have no monopoly power. Our result follows from a generalized indifference principle which mixed strategies must satisfy in such economic environments.

Suggested Citation

  • Bhaskar, V, 2005. "Commitment and Observability in an Economic Environment," Economics Discussion Papers 8887, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:8887
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    References listed on IDEAS

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    1. Bagwell, Kyle, 1995. "Commitment and observability in games," Games and Economic Behavior, Elsevier, vol. 8(2), pages 271-280.
    2. Guth, Werner & Kirchsteiger, Georg & Ritzberger, Klaus, 1998. "Imperfectly Observable Commitments inn-Player Games," Games and Economic Behavior, Elsevier, vol. 23(1), pages 54-74, April.
    3. Jorg Oechssler & Karl Schlag, 1997. "An Evolutionary Analysis of Bagwell's Example," Game Theory and Information 9704001, University Library of Munich, Germany, revised 11 Apr 1997.
    4. Giovanni Maggi, 1999. "The Value of Commitment with Imperfect Observability and Private Information," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 555-574, Winter.
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    Cited by:

    1. Morgan, John & Vardy, Felix, 2007. "The value of commitment in contests and tournaments when observation is costly," Games and Economic Behavior, Elsevier, vol. 60(2), pages 326-338, August.
    2. Bhaskar, V., 2009. "Games played in a contracting environment," Games and Economic Behavior, Elsevier, vol. 67(2), pages 389-398, November.

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    Keywords

    imperfect observation; mixed strategies.;

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