This paper constructs the equilibrium for a specific code that can be seen as a “universal grammar” in a class of common interest Sender–Receiver games where players communicate through a noisy channel. We propose a Senderʼs signaling strategy which does not depend on either the game...

In many real world negotiations, from wage contract bargaining to product liability disputes, the bargaining parties often interact repeatedly and have the option of seeking outside judgement. This paper studies a model of repeated bargaining with a third party to analyze how and why bargaining...

Many dynamic incentive problems have primal recursive formulations in which utility promises serve as state variables. We associate families of dual recursive problems with these by selectively dualizing constraints. We make transparent the connections between recursive primal and dual...

This study analyzes a continuous-time N-agent Brownian hidden-action model with exponential utilities, in which agents' actions jointly determine the mean and the variance of the outcome process. In order to give a theoretical justi¯cation for the use of linear contracts, as in Holmstrom and...

We introduce a model of communication with dynamic state of nature. We rely on entropy as a measure of information, characterize the set of expected empirical distributions that are achievable. We present applications to games with and without common interests.Classification JEL : C61, C73, D82.

In spite of the importance of optimal contracting problems under moral hazard and adverse selection, current literature offers no optimal solutions to contracting problems under moral hazard and adverse selection with risk averse agents. The agent's risk aversion, however, appears to be critical...

In this paper, we define and study a new class of optimal stochastic control problems which is closely related to the theory of Backward SDE's and forward-backward SDE's. The controlled process takes values in RXR and a given initial data for X(O). Then, the control problem is to find the...

This paper develops a theory of regular Markov perfect equilibria in dynamic stochastic games. We show that almost all dynamic stochastic games have a finite number of locally isolated Markov perfect equilibria that are all regular. These equilibria are essential and strongly stable. Moreover,...

Knightian uncertainty in climate sensitivity is analyzed in a two sectoral integrated assessment model (IAM), based on an extension of DICE. A representative household that expresses ambiguity aversion uses robust control to identify robust climate policy feedback rules that work well over IPCC...

Most economic models implicitly or explicitly assume that interactions between economic agents are 'global' - in other words, each agent interacts in a uniform manner with every other agent. However, localized interactions between microeconomic agents are a pervasive feature of reality. What are...