Gradual Bargaining in Decentralized Asset Markets

Guillaume Rocheteau, Tai-Wei Hu, Lucie Lebeau and Younghwan In
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Tai-Wei Hu: University of Bristol
Younghwan In: KAIST

Review of Economic Dynamics, 2021, vol. 42, 72-109

Abstract: We introduce a new approach to bargaining, with strategic and axiomatic foundations, into models of decentralized asset markets. According to this approach, which encompasses the Nash (1950) solution as a special case, bilateral negotiations follow an agenda that partitions assets into bundles to be sold sequentially. We construct two alternating-offer games consistent with this approach and characterize their subgame perfect equilibria. We show the revenue of the asset owner is maximized when assets are sold one infinitesimal unit at a time. In a general equilibrium model with endogenous asset holdings, gradual bargaining reduces asset misallocation and prevents market breakdowns. (Copyright: Elsevier)

Keywords: Decentralized asset markets; Bargaining with an agenda; Nash program (search for similar items in EconPapers)
JEL-codes: D83 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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DOI: 10.1016/j.red.2020.10.008

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