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No compromise: Uncertain costs in reputational bargaining

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  • Fanning, Jack

Abstract

I show how uncertainty about agents' future costs of delay can lead to substantial bargaining delays when agents have reputational concerns. Reputational concerns arise because with positive probability agents are behavioral types, committed to demanding a fixed share of the surplus. In equilibrium, rational agents may demand almost the entire surplus and then wait, with the deadlock only broken by the arrival of news about future costs, even as the probability of behavioral types vanishes. Although both agents would benefit from a compromise reached immediately, they do not propose such agreements, because doing so would increase an opponent's option value of waiting.

Suggested Citation

  • Fanning, Jack, 2018. "No compromise: Uncertain costs in reputational bargaining," Journal of Economic Theory, Elsevier, vol. 175(C), pages 518-555.
    • Handle: RePEc:eee:jetheo:v:175:y:2018:i:c:p:518-555
    DOI: 10.1016/j.jet.2018.02.001
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    References listed on IDEAS

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    Cited by:

    1. Anna Sanktjohanser, 2020. "Optimally Stubborn," Cowles Foundation Discussion Papers 2255, Cowles Foundation for Research in Economics, Yale University.
    2. Sanktjohanser, Anna, 2022. "Optimally Stubborn," TSE Working Papers 22-1367, Toulouse School of Economics (TSE).

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    More about this item

    Keywords

    Bargaining; Reputation; Uncertainty; Delay; Option values;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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