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Creative Bargaining

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  • Frankel, David M.

Abstract

We examine what happens if, as players bargain, they can exert costly effort to expand the set of possible proposals. With side payments, new ideas influence the size of the pie but not its division. The benefits of one player's creativity are shared with the other player, so effort is inefficiently low. Without side payments, new ideas do influence the distribution, so players inefficiently limit their search to ideas that favor them. Getting an idea makes an agreement more likely, but it also makes the other player's ideas less likely to be adopted. Consequently, effort can be either excessive or suboptimal.

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File URL: http://www.sciencedirect.com/science/article/B6WFW-45JC9F0-25/2/eab2b46c528424486d2ff778832e3f09
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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 23 (1998)
Issue (Month): 1 (April)
Pages: 43-53

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Handle: RePEc:eee:gamebe:v:23:y:1998:i:1:p:43-53

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Web page: http://www.elsevier.com/locate/inca/622836

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References

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  1. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
  2. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-59, April.
  3. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  4. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 93-108, January.
  5. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
  6. 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.
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Cited by:
  1. Shingo Ishiguro, 2010. "Holdup, search, and inefficiency," Economic Theory, Springer, vol. 44(2), pages 307-338, August.
  2. Appelbaum, Elie, 2011. "Union-firm bargaining: Order of play and efficiency," Games and Economic Behavior, Elsevier, vol. 71(2), pages 235-245, March.
  3. Elie Appelbaum, 2009. "Alternating Offers Union-Firm Bargaining: Order of Play and Efficiency," Working Papers 2009_02, York University, Department of Economics.
  4. Wait, A., 2001. "Delays in Bargaining With Incompelete Contracts," Department of Economics - Working Papers Series 809, The University of Melbourne.

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