The paper proposes an equilibrium solution concept for dynamic games where players can communicate with one another, but cannot make contractual agreements. In such games, unlike the static problems without contracting possibilities, the cooperation between players is possible due to the fact that the realization of negotiated agreements can be enforced by suitably-defined strategies. The definition presented combines dynamic programming, the theory of bargaining and the notion of enforceable agreements to produce a class of cooperative solutions defined in the form of memory Nash equilibria satisfying the principle of optimality along the equilibrium trajectory. The choice of a particular solution in this class depends on players' expected actions in case of disagreement, and on an adopted negotiation scheme formalized in the form of a bargaining model. Possible formulations of disagreement policies and bargaining models are discussed in some detail.
['B. Towiski']
A concept of cooperative equilibrium for dynamic games