Sustainable Exploitation Equilibria for Dynamic Games

Abstract: We introduce the Sustainable Exploitation Equilibrium (SEE), a refinement of Markov Perfect Equilibrium (MPE) for dynamic games with an exploiter-exploitee structure. SEE imposes two additional discipline conditions: (i) viability, requiring state trajectories to remain inside a sustainability set; and (ii) renegotiation-proofness with exploiter-optimal selection, to retain only those viable equilibria that are immune to Pareto-improving renegotiations, with ties resolved in favor of the exploiter. In our base formulation the exploitee cannot exit the relationship (no outside option), but retains a strategic effort margin that affects dynamics and payoffs. We establish existence under appropriate conditions and illustrate SEE in a hegemon-client model of foreign politics, where tribute demands trade off against the client's governance effort.