Outside Options in a Bargaining Model with Decay in the Size of the Cake (Now published in Economics Letters 40 (1992), pp.417-421.)

Alberto Dalmazzo

STICERD - Theoretical Economics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: The paper analyses a simple Rubinstein-type bargaining model in which there is no discounting and the cake decays over time at a positive rate. As a consequence, outside options enter players' unique Perfect Equilibrium payoffs. It is then shown that these payoffs, when the interval between two subsequent calls shrinks to zero, take the "split-the-difference" form. (These results generalise easily to the case of three-party bargaining). This can justify the common practice, in labour economics, of deriving wage-equation expressions from Nash-maximands in which the status-quo points are shifted to the outside option level.

Date: 1992-05
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:cep:stitep:239

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