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Dynamic game theory serves the purpose of including strategic interaction in decision making and is therefore often applied to economic problems. This book presents the state-of-the-art and directions for future research in dynamic game theory related to economics. It was initiated by contributors to the 12th Viennese Workshop on Optimal Control, Dynamic Games and Nonlinear Dynamics and combines a selection of papers from the workshop with invited papers of high quality.

We analyze reputation in a game between a large player and a continuum of long-lived small players in which state variables affect players' payoffs. The large player's type is private information. We give conditions under which in every Nash equilibrium a very patient large player will get almost the largest payoff consistent with the small players choosing a best response in a large finite truncation of the game. While our results apply to the time inconsistency problem of optimal government policy, we show that for the durable goods monopoly reputation may fail to improve the monopolist's payoff ; Marco Celentani gratefully acknowledges the financial support of DGICYT, Grant PB92-0245 and of HCM Programme, grants ERBCHBICT 940975 and CHRXCT 940458. Wolfgang Pesendorfer gratefully acknowledges the financial support of the National Science Foundation, Grant SBR-9409180. ; Publicado

The article provides a survey and exposition of recent developments in dynamic noncooperative game theory and dynamic contract theory. In realistic models of economic relationships, complex long-term agreements may be mutually beneficial; legal enforcement of contracts is difficult or impossible; assymmetries of information place limits on the use of other enforcement techniques; and competitive forces are too weak to prevent strategic behavior from influencing how relationships are organized. Dynamic contract theory allows significantly better explanations of behavior in such relationships than perfectly competitive models in which agents can make complete, perfectly enforceable long-term contracts. This article provides a general exposition of static and dynamic noncooperative game theory and provides an introduction to dynamic contract theory, with special emphasis on enforcement techniques.

Analyzed is a continuous or dynamic version of the R. Hardin game (see SA 20:6/72F8326) over collective goods. M. Olson's analysis (The Logic of Collective Action, Cambridge: Harvard University Press, 1965) of such prisoners' dilemma games, containing a contradiction between individual & collective rationality, lead him to the conclusion that the collective good would not be provided or maintained. On the other hand, the usual equilibrium notion of the core would predict some pareto optimal outcome of the game. Here it is argued that both the Olson argument & the core prediction are incorrect. In particular, the core theory does not make explicit certain internal assumptions regarding rationally expected responses to noncooperation. Instead, the structure of the game is such as to permit local cycles. More generally, one may regard the game as an instance of Arrowian inconsistency; in fact, the domain of instability in the game is shown to be dense. It is argued that all games with similar structure, including oligopoly, imperfect market, & bargaining games display precisely this locally cyclic instability. Given the ubiquity of instability in such games, the germ of a solution theory is introduced, emphasizing the notion of a stable nucleus of a coalition. A discussion of the stability of the Atlantic Alliance & the OPEC coalition is presented in these terms. 12 Figures. AA.