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Finite Horizon Bargaining With Outside Options And Threat Points

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  • Randolph Sloof

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Abstract

We characterize equilibrium behavior in a finite horizon multiple-pie alternating offer bargaining game in which both agents have outside options and threat points. In contrast to the infinite horizon case the strength of the threat to delay agreement is non-stationary and decreases over time. Typically the delay threat determines equilibrium proposals in early periods, while the threat to opt out characterizes those in later ones. Owing to this non-stationarity both threats may appear in the equilibrium shares immediately agreed upon in the first period. When the threat to opt out is empty for both agents, the outcome corresponds exactly with the (generalized) Nash bargaining solution. The latter observation may prove useful for designing experiments that are meant to test economic models that include a bargaining stage. Copyright Springer 2005

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File URL: http://hdl.handle.net/10.1007/s11238-004-4319-5
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Bibliographic Info

Article provided by Springer in its journal Theory and Decision.

Volume (Year): 57 (2005)
Issue (Month): 2 (03)
Pages: 109-142

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Handle: RePEc:kap:theord:v:57:y:2005:i:2:p:109-142

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Web page: http://www.springerlink.com/link.asp?id=100341

Related research

Keywords: bargaining; finite horizon; implementation NBS; outside options;

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Cited by:
  1. Thomas Ehrmann & Karl-Hans Hartwig & Torsten Marner & Hendrik Schmale, 2009. "Specific Investments and Ownership Structures in Railways – An Experimental Analysis," Working Papers 12, Institute of Transport Economics, University of Muenster.
  2. Sloof, Randolph & Sonnemans, Joep & Oosterbeek, Hessel, 2004. "Specific investments, holdup, and the outside option principle," European Economic Review, Elsevier, vol. 48(6), pages 1399-1410, December.
  3. Sloof, Randolph & Oosterbeek, Hessel & Riedl, Arno & Sonnemans, Joep, 2006. "Breach remedies, reliance and renegotiation," International Review of Law and Economics, Elsevier, vol. 26(3), pages 263-296, September.

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