Repeated Protection for Sale

Chris Y. Tung and C. C. Yang

Pacific Economic Review, 2014, vol. 19, issue 4, 466-482

Abstract: This paper addresses whether the efficient equilibria characterized by Grossman and Helpman's one-shot protection-for-sale game are renegotiation-proof in an infinitely repeated setting. We propose a simple strategy profile that can support the efficient, truthful equilibrium in each period as a strongly renegotiation-proof subgame perfect equilibrium. This result provides another plausible reason to explain why the truthful equilibrium may be focal in the game of protection-for-sale. In addition, when the timing of the contributions is specified explicitly, the special interest groups should minimize the upfront payment to the government before policy implementation to reduce the possibility of the collapse of such relational contracts.

Date: 2014
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