On time-inconsistency in bargaining

Sebastian Kodritsch

Discussion Papers, Research Unit: Market Behavior from WZB Berlin Social Science Center

Abstract: This paper analyzes dynamically inconsistent time preferences in Rubinstein's (1982) seminal model of bargaining. When sophisticated bargainers have time preferences that exhibit a form of present bias - satisfied by the hyperbolic and quasi-hyperbolic time preferences increasingly common in the economics literature - equilibrium is unique and lacks delay. However, when one bargainer is more patient about a single period's delay from the present than one that occurs in the near future, the game permits a novel form of equilibrium multiplicity and delay. Time preferences with this property have most recently been empirically documented; they can also arise when parties who weight probabilities non-linearly bargain under the shadow of exogenous breakdown risk, as well as in settings of intergenerational bargaining with imperfect altruism. The paper's main contributions are (i) a complete characterization of the set of equilibrium outcomes and payoffs for separable time preferences, and (ii) present bias as a readily interpretable sufficient condition for uniqueness at the level of individual preferences.

Keywords: bargaining; time preference; dynamic inconsistency; delay (search for similar items in EconPapers)
JEL-codes: C78 D03 D74 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-gth and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbmbh:spii2014205

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