Long-run Negotiations with Dynamic Accumulation

Francesca Flamini

Working Papers from Business School - Economics, University of Glasgow

Abstract: Many negotiations (for instance, among political parties, part- ners in a business) are characterised by dynamic accumulation: current agreements affect future bargaining possibilities. We study such situations by using repeated bargaining games in which two parties can decide how much to invest and how to share the resid- ual surplus for their own consumption. We show that there is a unique (stationary) Markov Perfect Equilibrium characterised by immediate agreement. Moreover, in equilibrium a relatively more patient party invests more than his opponent. However, being more patient can make a player worse off. In addition, we derive the conditions under which we obtain the efficient investment path. Our results are robust to different bargaining procedures, different rates of time preferences andelasticities of substitution.

Keywords: Bargaining; Investment; Recursive Optimisation; Markov Perfect Equilibrium. (search for similar items in EconPapers)
JEL-codes: C61 C72 C73 C78 (search for similar items in EconPapers)
Date: 2007
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