Stationarity, Rationalizability and Bargaining

Inkoo Cho

The Review of Economic Studies, 1994, vol. 61, issue 2, 357-374

Abstract: Without assuming rational expectations, we examine the implications of a stationarity assumption in a standard bargaining model with one-sided incomplete information, where the seller makes an offer in each period. Instead of computing a weakly stationary equilibrium, we invoke rationalizability (Bernheim (1984) and Pearce (1984)) combined with the restriction that the buyer's acceptance rule be weakly stationary. There exists a pair of rationalizable sets of pure strategies for the seller and the buyer which are weakly stationary. We demonstrate that any initial offer from the seller induced by a strategy rationalized by a weakly stationary acceptance rule for the buyer must entail the Coase property. Our result does not presume the selection of a particular equilibrium and follows directly from the weak stationarity assumption of the buyer's acceptance rule and the rational behaviour of the players.

Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:61:y:1994:i:2:p:357-374.

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