A principal decides which party deserves a prize. Only the parties observe the state that determines who is deserving. The principal gives each party a text describing the conditions under which that party deserves the prize and asks each to report the state. The parties are nonstrategic. Each activates a known cheating procedure whose outcome depends on the state and on the text. Implementation is achieved if, whenever the parties disagree, the liar is identified by the “one-way cheating principle”: The truthful party is the unique party who could not have produced his story had the rival's story been true.

This paper models the wage-contract negotiation procedure between a union and a firm as a sequential bargaining process in which the union must decide, in each period, whether or not to strike for the duration of that period. We show that there exist subgame-perfect equilibria in which the union engages in several periods of strikes prior to reaching a final agreement, although both parties are completely rational and fully informed. This has implications for other inefficient phenomena, such as tariff wars, debt negotiations, and wars in general. We characterize the set of equilibria, show that strikes can occur in real time, and discuss extensions of the model, such as lockouts and the possibility of multiple recontracting opportunities.

Optimal Risk Adjustment in Markets with Adverse Selection: An Application to Managed Care by Jacob Glazer and Thomas G. McGuire. Published in volume 90, issue 4, pages 1055-1071 of American Economic Review, September 2000