Costly Bargaining and Renegotiation

Luca Anderlini and Leonardo Felli

No 213, CESifo Working Paper Series from CESifo

Abstract: We identify the inefficiencies that arise when negotiation between two parties takes place in the presence of transaction costs. First, for some values of these costs it is efficient to reach an agreement but the unique equilibrium outcome is one in which agreement is never reached. Secondly, even when there are equilibria in which an agreement is reached, we find that the model always has an eqilibrium in which agreement is never reached, as well as equilibria in which agreement is delayed for an a rbitrary length of time. Finally, the only way in which the parties can reach an agreement in equilibrium is by using inefficient punishments for (some of) the opponent's deviations. We argue that this implies that, when the parties are given the opportunit y to renegotiate out of these inefficiencies, the only equilibrium outcome which survives is the one in which agreement is never reached, regardless of the value of the transaction costs.

Keywords: Optional bargaining costs; inefficient bargaining outcomes; renegotiation; imperfect recall (search for similar items in EconPapers)
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Costly Bargaining and Renegotiation (2001)
Working Paper: Costly bargaining and renegotiation (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_213

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