A principal and an agent enter into a sequence of agreements. The principal faces an interim participation constraint at each date, but can commit to the current agreement; in contrast, the agent has the opportunity to renege on the current agreement. We study the time structure of agreement sequences that satisfy participation and no-deviation constraints and are (constrained) efficient. We show that every such sequence must, after a finite number of dates, exhibit a continuation that maximizes the agent's payoff over all such efficient, self-enforcing sequences. Additional results are provided for situations with transferable payoffs.

Harsanyi (1974) and Ray and Vohra (2015) extended the stable set of von Neumann and Morgenstern to impose farsighted credibility on coalitional deviations. But the resulting farsighted stable set suffers from a conceptual drawback: while coalitional moves improve on existing outcomes, coalitions might do even better by moving elsewhere. Or other coalitions might intervene to impose their favored moves. We show that every farsighted stable set satisfying some reasonable and easily verifiable properties is unaffected by the imposition of these stringent maximality constraints. The properties we describe are satisfied by many, but not all, farsighted stable sets.

This paper develops a theory in which society-wide economic outcomes shape individual aspira-tions, which affect the investment incentives of individuals. Through its impact on investments, aspirations in turn affect ambient social outcomes. We explore this two-way link. A central feature is that aspirations that are moderately above an individual’s current standard of living tend to encourage investment, while still higher aspirations may lead to frustration and lower investment. When integrated with the feedback effect from investment, we are led to a the-ory in which aspirations and income evolve jointly, and the social determinants of preferences play an important role. We examine conditions under which growth is compatible with long-run equality in the distribution of income. More generally, we describe steady state income distri-butions, which are typically clustered around local poles. Finally, the theory has predictions for the growth rates along the cross-section of income. We use these predictions to calibrate the model so that it fits growth data by income percentile for 43 countries, and back out the implicit aspirations-formation process that underlies these observations.

Harsanyi (1974) criticized the von Neumann–Morgenstern (vNM) stable set for its presumption that coalitions are myopic about their prospects. He proposed a new dominance relation incorporating farsightedness, but retained another feature of the stable set: that a coalition S can impose any imputation as long as its restriction to S is feasible for it. This implicitly gives an objecting coalition complete power to arrange the payoffs of players elsewhere, which is clearly unsatisfactory. While this assumption is largely innocuous for myopic dominance, it is of crucial significance for its farsighted counterpart. Our modification of the Harsanyi set respects “coalitional sovereignty.” The resulting farsighted stable set is very different from both the Harsanyi and the vNM sets. We provide a necessary and sufficient condition for the existence of a farsighted stable set containing just a single-payoff allocation. This condition roughly establishes an equivalence between core allocations and the union of allocations over all single-payoff farsighted stable sets. We then conduct a comprehensive analysis of the existence and structure of farsighted stable sets in simple games. This last exercise throws light on both single-payoff and multi-payoff stable sets, and suggests that they do not coexist.

This paper studies endogenous risk-taking by embedding a concern for status (relative consumption) into an otherwise conventional model of economic growth. We prove that if the intertemporal production function is strictly concave, an equilibrium must converge to a unique steady state in which there is recurrent endogenous risk-taking. (The role played by concavity is clarified by considering a special case in which the production function is instead convex, in which there is no persistent risk-taking.) The steady state is fully characterized. It displays features that are consistent with the stylized facts that individuals both insure downside risk and gamble over upside risk, and it generates similar patterns of risk-taking and avoidance across environments with quite different overall wealth levels. Endogenous risk-taking here is generally Pareto-inefficient. A concern for status thus implies that persistent and inefficient risk-taking hinders the attainment of full equality.

We argue that poverty can perpetuate itself by undermining the capacity for self-control. In line with a distinguished psychological literature, we consider modes of self-control that involve the self-imposed use of contingent punishments and rewards. We study settings in which consumers with quasi-hyperbolic preferences confront an otherwise standard intertemporal allocation problem with credit constraints. Our main result demonstrates that low initial assets can limit self-control, trapping people in poverty, while individuals with high initial assets can accumulate indefinitely. Thus, even temporary policies that initiate accumulation among the poor may be effective. We examine implications concerning the effect of access to credit on saving, the demand for commitment devices, the design of financial accounts to promote accumulation, and the variation of the marginal propensity to consume across income from different sources. We also explore the nature of optimal self-control, demonstrating that it has a simple and behaviorally plausible structure that is immune to self-renegotiation.

A concept of an egalitarian solution is developed within the framework of cooperative game theory. The solution is designed to capture the interplay between social values (in this case, egalitarianism) and individual behavior. Both the final outcomes possible coalitional deviations are constrained by these social norms. The authors' main result: despite using a partial order (the Lorenz criterion) to compare allocations, their solution concept yields at most one allocation for each game. The concept is illustrated by a detailed study of convex games, and by a number of examples and applications. Copyright 1989 by The Econometric Society.

Suppose that the authors are interested in the distribution of a set of characteristics over a population. They study a precise sense in which this distribution can be said to be polarized and provide a theory of measurement. Polarization, as conceptualized here, is closely related to the generation of social tensions, to the possibilities of revolution and revolt, and to the existence of social unrest in general. The authors take special care to distinguish their theory from the theory of inequality measurement. They derive measures of polarization that are easily applicable to distributions of characteristics such as income and wealth. Copyright 1994 by The Econometric Society.

We develop the measurement theory of polarization for the case in which income distributions can be described using density functions. The main theorem uniquely characterizes a class of polarization measures that fits into what we call the “identity-alienation” framework, and simultanously satisfies a set of axioms. Second, we provide sample estimators of population polarization indices that can be used to compare polarization across time or entities. Distribution-free statistical inference results are also used in order to ensure that the orderings of polarization across entities are not simply due to sampling noise. An illustration of the use of these tools using data from 21 countries shows that polarization and inequality orderings can often differ in practice.