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Bargaining over Risky Assets

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Author Info
Muhamet Yildiz (MIT)

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Abstract

We analyze the subgame-perfect equilibria of a game where two agents bargain in order to share the risk in their assets that will pay dividends once at some fixed date. The uncertainty about the size of the dividends is resolved gradually by the payment date and each agent has his own view about how the uncertainty will be resolved. As agents become less uncertain about the dividends, some contracts become unacceptable to some party to such an extent that at the payment date no trade is possible. The set of contracts is assumed to be rich enough to generate all the Pareto-optimal allocations. We show that there exists a unique equilibrium allocation, and it is Pareto-optimal. Immediate agreement is always an equilibrium outcome; under certain conditions, we further show that in equilibrium there cannot be a delay. In this model, the equilibrium shares depend on how the uncertainty is resolved, and an agent can lose when his opponent becomes more risk-averse. Finally, we characterize the conditions under which every Pareto-optimal and individually rational allocation is obtainable via some bargaining procedure as the unique equilibrium outcome.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Theoretical Economics.

Volume (Year): 2 (2002)
Issue (Month): 1 ()
Pages: 1040-1040
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Handle: RePEc:bep:thecon:v:2:y:2002:i:1:p:1040-1040

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Related research
Keywords: bargaining risk sharing delay

Find related papers by JEL classification:
D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March. [Downloadable!] (restricted)
  2. Roth, Alvin E, 1985. "A Note on Risk Aversion in a Perfect Equilibrium Model of Bargaining," Econometrica, Econometric Society, vol. 53(1), pages 207-11, January. [Downloadable!] (restricted)
  3. Farber, Henry S & Bazerman, Max H, 1989. "Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes," The Quarterly Journal of Economics, MIT Press, vol. 104(1), pages 99-120, February. [Downloadable!] (restricted)
  4. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-18, May. [Downloadable!] (restricted)
  5. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September. [Downloadable!] (restricted)
  6. Henry S. Farber & Max H. Bazerman, 1989. "Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes."," NBER Working Papers 2139, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. [Downloadable!] (restricted)
  8. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. White, Lucy, 2006. "Prudence in Bargaining: The Effect of Uncertainty on Bargaining Outcomes," CEPR Discussion Papers 5822, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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