On the outside-option principle with one-sided options

Joel Watson

Economics Letters, 2020, vol. 191, issue C

Abstract: This note examines a bargaining game in which a single player has an outside option that can be taken in any period of time. If the outside-option value is close to the efficient frontier, then there exist equilibria that contravene the “outside-option principle.” In particular, the player with the outside option may receive significantly less than his/her equilibrium payoff in the game without it. An example of option-contract renegotiation is provided.

Keywords: Near-efficient outside options; Bargaining games; Negotiation; Bargaining solutions; The hold-up problem (search for similar items in EconPapers)
JEL-codes: C7 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:191:y:2020:i:c:s0165176520300963

DOI: 10.1016/j.econlet.2020.109110

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