Bargaining and Reputation

Dilip Abreu and Faruk Gul

Econometrica, 2000, vol. 68, issue 1, 85-118

Abstract: A complete information bargaining model is amended to accommodate "irrational types" who are inflexible in their offers and demands. An "independence of procedures" result is derived: the bargaining outcome is independent of the details of the bargaining protocol if players can make offers frequently. In the limiting continuous-time game, equilibrium is unique, and entails delay, consequently inefficiency. As the probability of irrationality goes to zero, delay and inefficiency disappear; furthermore, if there are a rich set of types for both agents, their limit equilibrium payoffs are inversely proportional to their rates of time preference.

Date: 2000
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