 Bargaining under liquidity constraints: Experimental evidenceJohn Duffy, Lucie Lebeau and Daniela Puzzello Journal of Economic Theory, 2025, vol. 228, issue C Abstract: Bargaining is widely used in monetary, labor and finance models to determine terms of trade. The chosen bargaining solution can matter for welfare analysis, for example when agents are liquidity constrained. Here we report on an experiment in which buyers and sellers engage in semi-structured bargaining to determine the terms of trade with the aim of evaluating the empirical relevance of two bargaining solutions, the generalized Nash bargaining solution and Kalai's proportional bargaining solution. These bargaining solutions predict different outcomes when buyers are constrained in their money holdings. We first use the case when the buyer is not liquidity constrained to estimate the bargaining power parameter, which we find to be equal to 1/2. Then, imposing liquidity constraints on buyers, we find strong evidence in support of the Kalai proportional solution. Our findings have policy implications, e.g., for the welfare cost of inflation in search-theoretic models of money. Keywords: Bargaining; Monetary economics; Experimental economics (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:228:y:2025:i:c:s002205312500081x DOI: 10.1016/j.jet.2025.106035 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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