Bargaining with Imperfect Enforcement

Mark Williams and Lucy White

No 5495, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The game-theoretic bargaining literature insists on non-cooperative bargaining procedure but allows 'cooperative' implementation of agreements. The effect of this is to allow free-reign of bargaining power with no check upon it. In reality, courts cannot implement agreements costlessly, and parties often prefer to use 'non-cooperative' implementation. We present a bargaining model which incorporates the idea that agreements may be enforced non-cooperatively. We show that this has a substantial impact in limiting the inequality of agreements, and results in a non-montonicity of the discount rate. The general need to maintain incentives for co-operation means it may appear that 'other-regarding' elements enter agents' utility functions. This helps us to understand why experimental subjects might begin negotiations anticipating 'fair' bargains. The model also explains why some parties may have incentives to deliberately write incomplete contracts which cannot be enforced in a court of law.

Keywords: Non-cooperative bargaining; Enforcement; Strength in weakness; Incomplete contracts (search for similar items in EconPapers)
JEL-codes: C72 C78 C91 D23 (search for similar items in EconPapers)
Date: 2006-02
New Economics Papers: this item is included in nep-exp, nep-gth and nep-upt
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Citations: View citations in EconPapers (1)

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