Is multilateral enforcement vulnerable to bilateral renegotiation?

In amultilateral enforcement regime, a player who cheats on one partner is punished bymany partners. But if partners can renegotiate in private, they can subvert the power of the multilateral punishment. We introduce a new notion of “bilateral renegotiation proofness” that applies to multilateral games with private monitoring. For symmetric networked environments, we characterize an optimal bilateral renegotiation proof equilibrium. While players’ ability to renegotiate bilaterally is indeed socially costly, it is perhaps not as costly as one might expect. In densely connected communities, the proportional cost imposed by bilateral renegotiation declines as the number of participants grows, and vanishes in the limit. *Ali: Pennsylvania State University. Miller and Yang: University ofMichigan. This research is financially supported by NSF grant SES–1127643.