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Tough negotiations: Bilateral bargaining with durable commitments

Tore Ellingsen () and Topi Miettinen ()

Games and Economic Behavior, 2014, vol. 87, issue C, 353-366

Abstract: We offer a tractable model of tough negotiations and delayed agreement. The setting is an infinite horizon bilateral bargaining game in which negotiators can make strategic commitments to durable offers. Commitments decay stochastically, but uncommitted negotiators can make new commitments. The game's unique Markov Perfect equilibrium outcome takes the form of a war of attrition: Negotiators initially commit to incompatible offers, but agreement occurs once a negotiator's commitment decays. If commitments decay more quickly, the terms of the agreement become more equal. In expectation, more patient, committed, and less risk averse negotiators obtain a larger fraction of the surplus.

Keywords: Bargaining; Commitment; Disagreement; War of attrition (search for similar items in EconPapers)
JEL-codes: C72 C78 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.geb.2014.05.016

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