GAMES WITH PARTIALLY ENFORCEABLE AGREEMENTS

This paper analyzes games with imperfectly enforceable agreements. It develops a dynamical model in which players are randomly paired into s ingle shot games at each moment. Initially players decide whether to h onor an agreement, and then they choose whether to complain to an enfo rcement agency. The probability of success of a complaint is endogenou s; it depends upon whether the defendant breached and upon the aggrega te behavior of all players. In the most interesting equilibria of the dynamical system some individuals honor and some individuals complain while others do not, and the net effect of the existence of an enforce ment agency is positive. (C) 1998 Academic Press.