A new mechanism for resolving bargaining impasses between risk averse parties

Emily Tanimura () and Sylvie Thoron
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Emily Tanimura: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: In a sequential bargaining game framework with complete information and no discounting, this paper proposes a mechanism in the spirit of a final offers arbitration (FOA). At each step, two parties may stop negotiating in order to implement a lottery between the two current proposals or go on making new proposals. A crucial difference with the FOA is that the list of past proposals is recorded and used by the mechanism. Once a lottery has been implemented, the parties can reject the offer which has been drawn and go back to a lottery between proposals made in the past. At the dominant subgame perfect equilibrium the two parties make gradual concessions leading to a final agreement which coincides with the Raiffa solution. The main incentive to reach an agreement comes from risk-aversion. The necessity to make step by step concessions generates evolving disagreement points and gradualism.

Keywords: Raiffa bargaining solution; Final offers arbitration; Bargaining theory; Risk-aversion; Chilling effect; Gradualism (search for similar items in EconPapers)
Date: 2016
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Published in International Game Theory Review, 2016

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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-01394208

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