In this paper, we study the time consistency of cooperative agreements in dynamic games with non-transferable utility. An agreement designed at the outset of a game is time-consistent (or sustainable) if it remains in place for the entire duration of the game, that is, if the players would not benefit from switching to their non-cooperative strategies. The literature has highlighted that, since side payments are not allowed, the design of such an agreement is very challenging. To address this issue, we introduce different notions for the temporal stability of an agreement and determine endogenously the duration of the agreement. We illustrate our general results with a linear-quadratic difference game and show that an agreement’s duration can be easily assessed using the problem data. We also study the effect of information structure on the endogenous duration of the agreement. We illustrate our results with a numerical example.

Original languageEnglish
Article number3
Pages (from-to)808-836
Number of pages29
JournalJournal of Optimization Theory and Applications
Volume195
Issue number3
Early online date17 Sep 2022
DOIs
StatePublished - Dec 2022

    Research areas

  • Dynamic games, Long-term cooperative agreements, Nontransferable utility, Time consistency

    Scopus subject areas

  • Management Science and Operations Research
  • Control and Optimization
  • Applied Mathematics

ID: 100063206