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Bargaining with Incomplete Information: An Infinite-Horizon Model with Two-Sided Uncertainty

Peter Cramton ()

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: The resolution of any bargaining conflict depends crucially on the relative urgency of the agents to reach agreement and the information each agent has about the others' preferences. This paper explores, within the context of an infinite-horizon bargaining model with two-sided uncertainty, how timing and information affect the rational behaviour of agents when commitment is not possible. Since the bargainers are uncertain about whether trade is desirable, they must communicate some of their private information before an agreement can be reached. This need for learning, due to incomplete information about preferences, results in bargaining inefficiencies: trade often occurs after costly delay. Thus, the model provides an explanation for the inefficient bargaining behaviour that appears to occur often in practice.

Keywords: Bargaining; Delay; Incomplete Information (search for similar items in EconPapers)
JEL-codes: C78 D82 (search for similar items in EconPapers)
Pages: 15 pages
Date: 1984, Revised 1998-06-09
New Economics Papers: this item is included in nep-pke
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Published in Review of Economic Studies, 51:4, October 1984, pages 579-593.

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