Observable Contracts: Strategic Delegation and Cooperation

The role of commitments in noncooperative games is well acknowledged and documented. One way to achieve commitments is by letting delegates represent the players of a game. In this paper, the authors study a delegation game in which the players can use agents strategically to play on their behalf and the contracts they sign with them are common knowledge. They show that, in such cases, every Pareto optimal outcome of the game can become the unique subgame perfect Nash equilibrium of the delegation game. The authors demonstrate this result by discussing the Cournot-type duopolistic game. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.