The role of commitment in bilateral trade

Dino Gerardi, Johannes Hörner and Lucas Maestri

Journal of Economic Theory, 2014, vol. 154, issue C, 578-603

Abstract: This paper characterizes the set of equilibrium payoffs in bargaining with interdependent values when the informed party makes all offers, as discounting vanishes. The seller of a good is informed of its quality, which affects both his cost and the buyer's valuation, but the buyer is not. To characterize this payoff set, we derive an upper bound, using mechanism design with limited commitment. We then prove that this upper bound is tight, by showing that all its extreme points are equilibrium payoffs. Our results shed light on the role of different forms of commitment in bargaining. In particular, they imply that the buyer's inability to commit before observing the terms of trade is what precludes efficiency.

Keywords: Bargaining; Mechanism design; Market for lemons (search for similar items in EconPapers)
JEL-codes: C70 C78 D82 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Working Paper: The Role of Commitment in Bilateral Trade (2014)
Working Paper: The Role of Commitment in Bilateral Trade (2013)
Working Paper: The Role of Commitment in Bilateral Trade (2010)
Working Paper: The Role of Commitment in Bilateral Trade (2010)
Working Paper: The Role of Commitment in Bilateral Trade (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:154:y:2014:i:c:p:578-603

DOI: 10.1016/j.jet.2014.09.017

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