Bargaining with imperfect enforcement

Lucy White and Mark Williams

RAND Journal of Economics, 2009, vol. 40, issue 2, 317-339

Abstract: The game‐theoretic bargaining literature insists on a noncooperative bargaining procedure but implicitly assumes “cooperative” implementation of agreements. In reality, courts cannot implement agreements costlessly, and parties often prefer to use “noncooperative” implementation. We present a bargaining model which incorporates the idea that agreements may be enforced noncooperatively. We show that this has a substantial impact in limiting the inequality of agreements, and results in a nonmonotonicity of the discount rate. The model also explains why some parties may have incentives to deliberately write incomplete contracts as a way to enhance their bargaining power.

Date: 2009
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https://doi.org/10.1111/j.1756-2171.2009.00067.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:randje:v:40:y:2009:i:2:p:317-339

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