Time Preferences and Bargaining
STICERD - Theoretical Economics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE
This paper presents an analysis of general time preferences in the canonical Rubinstein (1982) model of bilateral alternating-offers bargaining. I derive a simple sufficient structure for optimal punishments and thereby fully characterize (i) the set of equilibrium outcomes for any given preference profile, and (ii) the set of preference profiles for which equilibrium is unique. When both players have a present bias— empirically, a property of most time preferences regarding consumption, and implied, e.g., by any hyperbolic or quasi-hyperbolic discounting—equilibrium is unique, stationary and efficient. When, instead, one player finds a near-future delay more costly than delay from the present—empirically common for time preferences over money—non stationary equilibria arise that explain inefficiently delayed agreement with gradually increasing offers.
Keywords: alternating offer; time preference; impatience; discounting; dynamic inconsistency; delay; optimal punishment; simple penal codes; non-stationary equilibrium (search for similar items in EconPapers)
JEL-codes: C78 D03 D74 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stitep:/2015/568
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