Arbeitspapier

Costly Bargaining and Renegotiation

We identify the inefficiencies that arise when negotiation between two parties takes place in the presence of transaction costs. First, for some values of these costs it is efficient to reach an agreement but the unique equilibrium outcome is one in which agreement is never reached. Secondly, even when there are equilibria in which an agreement is reached, we find that the model always has an eqilibrium in which agreement is never reached, as well as equilibria in which agreement is delayed for an a rbitrary length of time. Finally, the only way in which the parties can reach an agreement in equilibrium is by using inefficient punishments for (some of) the opponent's deviations. We argue that this implies that, when the parties are given the opportunit y to renegotiate out of these inefficiencies, the only equilibrium outcome which survives is the one in which agreement is never reached, regardless of the value of the transaction costs.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 213

Classification
Wirtschaft
Subject
Optional bargaining costs
inefficient bargaining outcomes
renegotiation
imperfect recall

Event
Geistige Schöpfung
(who)
Anderlini, Luca
Felli, Leonardo
Event
Veröffentlichung
(who)
Center for Economic Studies and ifo Institute (CESifo)
(where)
Munich
(when)
1999

Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Anderlini, Luca
  • Felli, Leonardo
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 1999

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