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On the Role of Outside Options in Bargaining with Obstinate Parties

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Author Info
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.)

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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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Publisher 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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  2. Baron, David P., 2002. "Private Politics and Private Policy: A Theory of Boycotts," Research Papers 1766, Stanford University, Graduate School of Business. [Downloadable!]
  3. Srihari Govindan & Robert Wilson, 2008. "On Forward Induction," Levine's Working Paper Archive 122247000000001859, David K. Levine. [Downloadable!]
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  4. Roy Chowdhury, Prabal & Sengupta, Kunal, 2009. "Transparency, complementarity and holdout," MPRA Paper 17606, University Library of Munich, Germany. [Downloadable!]
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  6. Dilip Abreu & David G. Pearce, 2006. "Bargaining, Reputation and Equilibrium Selection in Repeated Games with Contracts," Levine's Bibliography 321307000000000640, UCLA Department of Economics. [Downloadable!]
  7. Tore Ellingsen & Topi Miettinen, 2007. "Disagreement and Authority," Jena Economic Research Papers in Economics 2007-037, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek. [Downloadable!]
  8. 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. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. repec:bep:eaptop:v:4:y:2004:i:1:p:1312-1312 is not listed on IDEAS
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  11. Govindan, Srihari & Wilson, Robert B., 2008. "Decision-Theoretic Forward Induction," Research Papers 1986, Stanford University, Graduate School of Business. [Downloadable!]
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