Communication and Commitment with Constraints in International Alliances
Raghul Venkatesh ()
Working Papers from HAL
An informed and an uninformed agent both contribute to a joint coordination game such that their actions are substitutable and constrained. When agents are allowed to share information prior to the coordination stage, in the absence of commitment , there is full information revelation as long as constraints are not binding. The presence of binding constraints results in only partial revelation of information in equilibrium. The most informative equilibrium is strictly pareto dominant. Allowing for limited commitment strictly increases (ex ante) welfare of both agents. I completely characterize the optimal commitment mechanism for the uninformed agent. Finally, I apply the theoretical results to the problem of information sharing and binding agreements in international alliances.
Keywords: strategic substitutes; commitment; cheap talk; asymmetric information (search for similar items in EconPapers)
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