EconPapers    
Economics at your fingertips  
 

Costly Preparations in Bargaining

Emin Karagözoğlu () and Shiran Rachmilevitch

Scandinavian Journal of Economics, 2021, vol. 123, issue 2, 532-557

Abstract: We model costly preparations in negotiations and study their effect on agreements in a bilateral bargaining game. In our model, players bargain over a unit pie, where each player needs to pay a fixed cost in the beginning of every period t, if he wants to stay in the game in period t+1 in case a deal has not been reached by the end of t. Whether a player has paid this cost (i.e., prepared for negotiations in t+1) is his private information. If only player i stops paying, then player j receives the entire pie. We characterize a “war of attrition” equilibrium, which is a symmetric equilibrium. We do not know whether the game has other symmetric equilibria, but we show that if such an equilibrium exists, its payoff converges to zero as the frictions (discounting and preparation cost) vanish. Efficiency can be obtained by asymmetric play. Specifically, with asymmetric strategies every Pareto‐efficient payoff vector can be approximated in equilibrium, provided that the cost of preparations is sufficiently small and that the discount factor is sufficiently close to one.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1111/sjoe.12409

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:scandj:v:123:y:2021:i:2:p:532-557

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0347-0520

Access Statistics for this article

Scandinavian Journal of Economics is currently edited by Richard Friberg, Matti Liski and Kjetil Storesletten

More articles in Scandinavian Journal of Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2023-01-25
Handle: RePEc:bla:scandj:v:123:y:2021:i:2:p:532-557