Identification of Stochastic Sequential Bargaining Models

Antonio Merlo and Xun Tang ()
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Xun Tang: Department of Economics, University of Pennsylvania

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: Stochastic sequential bargaining games (Merlo and Wilson (1995, 1998)) have found wide applications in various fields including political economy and macroeconomics due to their flexibility in explaining delays in reaching agreement. In this paper, we present new results in nonparametric identification of such models under different scenarios of data availability. First, with complete data on players’ decisions, the sizes of the surplus to be shared (cakes) and the agreed allocations, both the mapping from states to the total surplus (i.e. the "cake function") and the players’ common discount rate are identified, if the unobservable state variable (USV) is independent of observable ones (OSV), and the total surplus is strictly increasing in the USV conditional on the OSV. Second, when the cake size is only observed under agreements and is additively separable in OSV and USV, the contribution by OSV is identified provided the USV distribution satisfies some distributional exclusion restrictions. Third, if data only report when an agreement is reached but never report the cake sizes, we propose a simple algorithm that exploits exogenously given shape restrictions on the cake function and the independence of USV from OSV to recover all rationalizable probabilities for reaching an agreement under counterfactual state transitions. Numerical examples show the set of rationalizable counterfactual outcomes so recovered can be informative.

Keywords: Nonparametric identification; non-cooperative bargaining; stochastic sequential bargaining; rationalizable counterfactual outcomes (search for similar items in EconPapers)
JEL-codes: C14 C35 C73 C78 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2009-10-15
New Economics Papers: this item is included in nep-ecm
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