Reversible Agreements Without Externalities

Abstract This chapter analyzes reversible commitments in two steps. First, it studies reversible commitments in situations without externalities across coalitions. It shows that any equilibrium of this game satisfying some mild restrictions must lead, ultimately, to absorption into an unchanging, efficient payoff outcomes. Such a finding is in sharp contrast to games with irreversible commitments, in which inefficiency can be endemic even in situations without externalities. The assumption that negotiations are, in principle, ever-ongoing is central for this result.