 Dissolving partnerships under risk: An experimental investigationJournal of Economic Behavior & Organization, 2021, vol. 185, issue C, 702-720 Abstract: We experimentally study a situation in which two players negotiate the dissolution of a risky partnership. In our experiments, subjects must simultaneously negotiate both a selling price and the identity of the buyer. Upon reaching an agreement, one party (the buyer) will be subject to ex post risk, while the other party (the seller) will not, and the negotiation determines which party will hold the risk. Our results show that buyers extract a premium which is increasing in the riskiness of the partnership value distribution. Moreover, during bargaining, the majority of subjects make offers in which they would be the buyer (and thus exposed to risk) if the offer is accepted. Allowing subjects to communicate has noticeable effects: agreements are significantly more frequent and sorting according to fairness ideas – such that the buyer is the player with the higher “fair price” – is more frequent. We also show that, when subjects are able to communicate, bargaining pairs who discuss risk exposure or fairness generally agree to a lower price, giving greater compensation to risk for the buyer. Keywords: Bargaining; Ex-post risk; Partnership dissolution (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:185:y:2021:i:c:p:702-720 DOI: 10.1016/j.jebo.2021.03.020 Access Statistics for this article Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D. More articles in Journal of Economic Behavior & Organization from Elsevier |
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