152
The hostage model.
Party A
Party B
Use non-specialized
technology
Hold up
Don’t
hold up
(
½π,
½π
)
(-h,
αh-C
)
w
Now suppose that Party B
supplies a
hostage
of value
α
h before the game begins.
Party A
Don’t
give in
Give in
(
0.9π,
0.1π
)
w
The hostage — a credible commitment — is
forfeit in the event of contract breach.
Use specialized
technology
(
¼π,
¼π
)
