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On the Role of Outside Options in Bargaining with Obstinate Parties

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  • Olivier Compte

    ()
    (CERAS, Ecole Nationale des Ponts et Chaussees, Paris, France)

  • Philippe Jehiel

    ()
    (CERAS, Ecole Nationale des Ponts et Chaussees, Paris, France, and UCL, London, U.K.)

Abstract

The presence of obstinate types in bargaining has been shown to alter dramatically the bargaining equilibrium strategies and outcomes. This paper shows that outside options may cancel out the effect of obstinacy in bargaining. When parties have access to stationary outside options, we show that when opting out is preferable to accepting the inflexible demand of the other party, there is a unique Perfect Bayesian Equilibrium in which each party reveals himself as rational as soon as possible. A similar conclusion holds when outside options may only be available at a later date or when only one party has access to an outside option. Copyright The Econometric Society 2002.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 70 (2002)
Issue (Month): 4 (July)
Pages: 1477-1517

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Handle: RePEc:ecm:emetrp:v:70:y:2002:i:4:p:1477-1517

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Cited by:
  1. Srihari Govindan & Robert Wilson, 2009. "On Forward Induction," Econometrica, Econometric Society, vol. 77(1), pages 1-28, 01.
  2. Juan Vidal-Puga, 2008. "Delay in the alternating-offers model of bargaining," International Journal of Game Theory, Springer, vol. 37(4), pages 457-474, December.
  3. Dilip Abreu & David G. Pearce, 2006. "Bargaining, Reputation and Equilibrium Selection in Repeated Games with Contracts," Levine's Bibliography 321307000000000640, UCLA Department of Economics.
  4. Ilwoo Hwang, 2013. "A Theory of Bargaining Deadlock," PIER Working Paper Archive 13-050, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Roy Chowdhury, Prabal & Sengupta, Kunal, 2012. "Transparency, complementarity and holdout," Games and Economic Behavior, Elsevier, vol. 75(2), pages 598-612.
  6. Tore Ellingsen & Topi Miettinen, 2007. "Disagreement and Authority," Jena Economic Research Papers 2007-037, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  7. Roman Inderst, 2005. "Bargaining with a Possibly Committed Seller," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 927-944, October.
  8. Baron, David P., 2002. "Private Politics and Private Policy: A Theory of Boycotts," Research Papers 1766, Stanford University, Graduate School of Business.
  9. Eerola, Essi & Määttänen, Niku & Poutvaara, Panu, 2004. "Citizens should vote on secession," Munich Reprints in Economics 20524, University of Munich, Department of Economics.
  10. Juan Vidal-Puga, 2005. "Reinterpreting the meaning of breakdown," Game Theory and Information 0501004, EconWPA.
  11. Govindan, Srihari & Wilson, Robert B., 2008. "Decision-Theoretic Forward Induction," Research Papers 1986, Stanford University, Graduate School of Business.
  12. Abreu, Dilip & Pearce, David G. & Stacchetti, Ennio, 0. "One-sided uncertainty and delay in reputational bargaining," Theoretical Economics, Econometric Society.
  13. Nejat Anbarci & Nick Feltovich, 2013. "How responsive are people to changes in their bargaining position? Earned bargaining power and the 50–50 norm," EcoMod2013 5855, EcoMod.
  14. Dutta, Rohan, 2012. "Bargaining with revoking costs," Games and Economic Behavior, Elsevier, vol. 74(1), pages 144-153.

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