Compromise is key in infinitely repeated bargaining with an Evergreen Clause

Prajit K. Dutta

Journal of Economic Theory, 2021, vol. 193, issue C

Abstract: This paper considers a new model of repeated bargaining over a flow. In Rubinstein (1982), once an agreement is reached the game ends. Here, the game continues and the agreement can be re-negotiated at cost in any period. It is shown that, with finite memory, there is a unique equilibrium which converges to the Nash Bargaining Solution in the limit. The novel equilibrium feature is the search for compromise; players reject agreements that give them “too much”. Whilst rejection and delays are never observed on the equilibrium path in a stationary environment, they are observed in a non-stationary one. A folk theorem emerges with infinite memory.

Keywords: Repeated bargaining; Evergreen Clause; Compromise (search for similar items in EconPapers)
JEL-codes: C70 C78 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:193:y:2021:i:c:s0022053120301630

DOI: 10.1016/j.jet.2020.105170

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