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Credible Comparisons in Multi-Issue Bargaining

Archishman Chakraborty () and Rick Harbaugh ()

Claremont Colleges Working Papers from Claremont Colleges

Abstract: We find that bargaining over multiple issues as a bundle allows for credible cheap talk on the relative importance of the issues even when interests are directly opposed on each issue. This communication increases the chance of agreement by allowing the offerer to concede more on the issue of greater importance to the offeree. In contrast, if the issues are bargained over separately we find that the offeree will lie about which issue is of greater importance. The communication gains from bundling are in addition to the gains from bundling previously identified in the monopoly pricing literature. Applied to negotiations between an executive and a legislature, our results imply that bundling multiple issues in a single bill with no line-item veto increases communication and can benefit both the legislature and, in many cases, the executive as well.

Keywords: bundling; bargaining; cheap talk; veto (search for similar items in EconPapers)
JEL-codes: D72 D82 D42 C78 H61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-pbe
Date: 2002-04
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Handle: RePEc:clm:clmeco:2002-04