Negotiation over decommitment penalty

Leveled-commitment contracting is a negotiation protocol in which an agent is allowed to be freed from a contract at the cost of paying a penalty to the other contract party. While there has been some related work on analyzing agents’ strategic behavior in leveledcommitment contracting and applying decommitment contracting in practical resource allocation problems, decommitment penalties are exogenously set in the absence of mutual consensus of contract parties. Alternatively, this paper considers the role of negotiation in deciding decommitment penalties. In our model, agents negotiate over both the contract price and the amount of decommitment penalty in the contracting game and then decide whether to decommit from contracts in the decommitment game. This paper first analyzes agents’ strategic behavior in both the contracting game and the decommiting game. We then examine the efficiency of negotiating over the penalty through experiments in dynamic contracting scenarios. Experimental results show that setting penalties through negotiation achieved higher social welfare than other exogenous penalty setting mechanisms for a range of contracting strategies.