Bargaining under liquidity constraints: Unified strategic foundations of the Nash and Kalai solutions

Tai-Wei Hu and Guillaume Rocheteau

Journal of Economic Theory, 2020, vol. 189, issue C

Abstract: We provide unified strategic foundations for the Nash (1950) and Kalai (1977) solutions in the context of negotiations under liquidity constraints. We propose an N-round game where in each round a seller and a buyer with limited payment capacity negotiate a bundle of divisible goods, where bundle sizes can vary across rounds, according to Rubinstein's (1982) alternating-offer game. The game implements the Nash solution if N=1 and the Kalai solution if N=+∞ and bundle sizes are infinitesimal. If N is set by one player ex ante, the buyer chooses N=1 while the seller chooses N=+∞. We endogenize liquidity constraints and show they bind for all N<+∞, even when there is no cost in holding liquidity.

Keywords: Bargaining with an agenda; Nash program; Bargaining solution (search for similar items in EconPapers)
JEL-codes: D83 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:189:y:2020:i:c:s0022053120300910

DOI: 10.1016/j.jet.2020.105098

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