Renegotiation and Coordination with Private Values

We study games with pre-play communication in which it is common knowledge that coordination on the same action is better than mis-coordination, and the private type of the agent determines his preference among the various coordinated outcomes. We present a novel, yet intuitive, equilibrium strategy with the following properties: (1) each agent reports his preferred outcome (and nothing else), (2) agents never mis-coordinate, (3) if all agents have the same preferred outcome they coordinate on this outcome, and (4) if agents have different preferred outcomes there is an external “fallback norm” that determines the coordinate outcome. We show that this equilibrium behavior is essentially the unique renegotiation-proof strategy. Finally, we show that it satisfies various appealing properties, such as independence of the distribution of types, Pareto optimality, high ex-ante expected payoff, and strong form of evolutionarily stability.

Joint work with Christoph Kuzmics.