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- Title
Security Equilibrium.
- Authors
Binmore, K. G.; Herrero, M. J.
- Abstract
This paper presents a technique for demonstrating the existence of unique equilibria which is applicable to a variety of models in which the price at which goods are traded in a market is determined by pairwise bargaining between individual buyers and sellers who are brought together by some matching process. The technique is applied in detail to a generalization of a model of scholars A. Rubinstein and A. Wolinsky. Results are framed in terms of an equilibrium notion which we call a security equilibrium. The requirement for a security equilibrium is that it is common knowledge that no player will settle for a payoff, under any contingency, which is less than his security level given the occurrence of that contingency. This notion is clearly much weaker than most equilibrium ideas. A result which establishes uniqueness of such an equilibrium is therefore a strong one. Two aspects of this last point deserve some emphasis. In the first place, it should be noted that equilibrium ideas often make very heavy assumptions about the rationality of the agents who are making the necessary strategic decisions. In particular, it is usual to assume that common knowledge of rationality endows agents with the ability to pluck sharp a priori predictions about the behaviour of other agents from the air.
- Subjects
ECONOMIC equilibrium; COLLECTIVE bargaining; PRICES; ECONOMETRIC models; PURCHASING agents; SELLING; DECISION making; FORECASTING; PLANNING
- Publication
Review of Economic Studies, 1988, Vol 55, Issue 1, p33
- ISSN
0034-6527
- Publication type
Article
- DOI
10.2307/2297528