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Negotiated Contracts Can Be Inefficient

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  • Milan Horniaček
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    Abstract

    The paper analyzes negotiation about contracts between the buyer and the seller. A contract specifies the quantity delivered by the seller and the buyer's payment for each period within its time horizon. In each period without a valid contract any party can withdraw from negotiation forever. Any strictly individually rational payoff vector obtainable from single period trade can be equilibrium payoff vector in some subgame perfect equilibrium if discount factor is close enough to one. Every sub game perfect equilibrium, in which neither party's strategy depends on past rejected proposals, is dynamically weakly Pareto efficient.

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    File URL: http://ces.utia.cas.cz/bulletin/index.php/bulletin/article/view/134
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    Bibliographic Info

    Article provided by The Czech Econometric Society in its journal Bulletin of the Czech Econometric Society.

    Volume (Year): 11 (2004)
    Issue (Month): 20 ()
    Pages:

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    Handle: RePEc:czx:journl:v:11:y:2004:i:20:id:134

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    Related research

    Keywords: contract; negotiation; Markov strategy; Pareto efficiency;

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