Disagreement and Authority

Tore Ellingsen and Topi Miettinen

No 2007-037, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: Can two negotiators fail to agree when both the size of the surplus and the rationality of the negotiators are common knowledge? We show that the answer is affrmative. When the negotiators can make irrevocable commitments at a low but positive cost, the unique symmetric equilibrium entails disagreement with high probability. In the unique pair of pure strategy equilibria, one party gets all the surplus. Even though we impose no constraints on side-payments, effcient compromises are unattainable. A strongly asymmetric authority relationship is thus the only viable alternative to costly conflict.

Keywords: Authority; Bargaining; Commitment; Disagreement; Transaction Costs (search for similar items in EconPapers)
JEL-codes: C72 C78 (search for similar items in EconPapers)
Date: 2007-07-18
New Economics Papers: this item is included in nep-gth
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