Commitments and Partnerships

Abstract: We explore a 2-player partnership game where, before choosing a level of effort to exert on a joint project, each player sends a message to their partner, interpreted as a commitment about future effort. We allow that a convex cost of ‘reneging’ – the distance between a player's commitment and their actual effort – may enter the players’ subjective utility functions, but this is not part of their material payoffs. We study the endogenous determination of this ‘reneging cost’ in an evolutionary setting. Our main result shows that when each player may observe their partner's reneging cost with a high probability, there is a unique stable state in which all players have the same ‘intermediate’ reneging cost, and the equilibrium effort is a second-best outcome.