Internally Renegotiation-Proof Equilibrium Sets: Limit Behavior with Low Discounting

Abstract

Recent literature in the theory of games addresses the criticism that efficient outcomes in a dynamic game are often supported by punishment paths that do not have the same efficiency property. The outcome of this research is the notion of renegotiation-proof equilibria. In this paper, I analyze the notion of renegotiation-proof equilibrium sets that satisfy a natural criterion of internal consistency, one that the earlier notions do not satisfy. I analyze the limit points of such sets as discounting vanishes. The main result states that such limit sets must either be singletons or belong to the Pareto frontier of the convex hull of the feasible set of stage game payoffs. Journal of Economic Literature Classification Number: 026. © 1994 Academic Press. All rights reserved.