Advantages of a Leveled Commitment Contracting Protocol

In automated negotiation systems consisting of self-interested agents, contracts have traditionally been binding. Such contracts do not allow agents to e ciently accommodate future events. Game theory has proposed contingency contracts to solve this problem. Among computational agents, contingency contracts are often impractical due to large numbers of interdependent and unanticipated future events to be conditioned on, and because some events are not mutually observable. This paper proposes a leveled commitment contracting protocol that allows self-interested agents to e ciently accommodate future events by having the possibility of unilaterally decommitting from a contract based on local reasoning. A decommitment penalty is assigned to both agents in a contract: to be freed from the obligations of the contract, an agent only pays this penalty to the other party. It is shown through formal analysis of multiple contracting settings that this leveled commitment feature in a contracting protocol increases Pareto e ciency of deals and can make contracts individually rational when no full commitment contract can. This advantage holds even if the agents decommit manipulatively. Supported by ARPA contract N00014-92-J-1698. The content does not necessarily re ect the position or the policy of the Government and no o cial endorsement should be inferred. T. Sandholm also supported by the Finnish Culture Foundation, Honkanen Foundation, Ella and George Ehrnrooth Foundation, Finnish Science Academy, Leo and Regina Wainstein Foundation, Finnish Information Technology Research Foundation, and Jenny and Antti Wihuri Foundation.