A Framework for Reversible Agreements
This chapter develops a theory of coalition formation under the assumption that existing agreements can be costlessly renegotiated and reversed, with the consent of all participating agents. It sets up the basic framework, which is a model of coalition formation in ‘real time’: coalitions can form, dissolve, and re-form while payoffs are received concurrently. Notions of absorption and asymptotic efficiency are introduced. Apart from capturing ongoing renegotiation, this framework naturally allows for farsighted behavior. The very presumption that individuals use continuation values to judge the wisdom of moving to a new state suggests that they can, and do, anticipate further changes.
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