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An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game

Kurtis Swope (), Pamela Schmitt (), John Cadigan () and Robert Shupp
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John Cadigan: Gettysburg College

Departmental Working Papers from United States Naval Academy Department of Economics

Abstract: When an economic exchange requires agreement by multiple independent parties, the potential exists for an individual to strategically delay agreement in an attempt to capture a greater share of the surplus created by the exchange. This “holdout problem” is a common feature of the land assembly literature because development frequently requires the assembly of multiple parcels of land. We use experimental methods to examine holdout behavior in a laboratory bargaining game that involves multi-person groups, complementary exchanges, and holdout externalities. The results of six treatments that vary the bargaining institution, number of bargaining periods, and the cost of delay demonstrate that holdout is common across institutions and is, on average, a payoff-improving strategy for responders. Both proposers and responders take a more aggressive initial bargaining stance in multi-period bargaining treatments relative to single-period treatments, but take a less aggressive bargaining stance when delay is costly. Nearly all exchanges eventually occur in our multi-period treatments, leading to higher overall efficiency relative to the single-period treatments, both with and without delay costs.

Pages: 24 pages
Date: 2008-05
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http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp21.pdf (application/pdf)

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Journal Article: An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game (2009) Downloads
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