REINTERPRETING THE MEANING OF BREAKDOWN

Juan J. Vidal Puga
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Juan J. Vidal Puga: Universidade de Vigo
Authors registered in the RePEc Author Service: Juan Vidal-Puga

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: Alternating bargaining has been extensively used to model two-sidednegotiations. The celebrated model of Rubinstein (1982) has provided a formaljustification for equitable payoff division. A typical assumption of these models underrisk is that the breakdown event means a complete and irrevocable halt in negotiations.We reinterpret the meaning of breakdown as the imposition to finish negotiationsimmediately. Specifically, after breakdown the last offer becomes definitive. WhileRubinstein¿s model predicts an immediate agreement with stationary strategies, weshow that the same payoff allocation is attainable under non-stationary strategies.Moreover, the payoffs in delayed equilibria are potentially better for the proposer thanthose in which agreement is immediately reached.

Keywords: breakdown; bargaining; delay. (search for similar items in EconPapers)
JEL-codes: C72 C78 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2006-11
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