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Delegated Bargaining And Renegotiation

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  • Helmut Bester
  • J?sef S?ovics

Abstract

This paper examines the commitment effect of delegated bargaining when renegotiation of the delegation contract cannot be ruled out. We consider a seller who can either bargain face-to-face with a prospective buyer or hire an intermediary to bargain on her behalf. The intermediary is able to interrupt his negotiation with the buyer to renegotiate the delegation contract. In this model, the time cost of renegotiation prevents a full elimination of the commitment effect of delegation. In particular, there are always gains from delegation when the players are sufficiently patient. An extension of the basic model to a search market shows that the gains from delegation are negatively related to the efficiency of search.

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Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 440.99.

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Handle: RePEc:aub:autbar:440.99

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  1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  2. Michael L. Katz, 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 307-328, Autumn.
  3. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  4. Bester, H., 1993. "Price Commitment in Search Markets," Papers 9309, Tilburg - Center for Economic Research.
  5. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-37, May.
  7. Fershtman, Chaim & Kalai, Ehud, 1997. "Unobserved Delegation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 763-74, November.
  8. repec:fth:harver:1519 is not listed on IDEAS
  9. Chaim Fershtman & Kenneth L. Judd & Ehud Kalai, 1990. "Observable Contracts: Strategic Delegation and Cooperation," Discussion Papers 879, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Bester, Helmut, 1995. "A bargaining model of financial intermediation," European Economic Review, Elsevier, vol. 39(2), pages 211-228, February.
  11. Muthoo, Abhinay, 1992. "Revocable Commitment and Sequential Bargaining," Economic Journal, Royal Economic Society, vol. 102(411), pages 378-87, March.
  12. Mathias Dewatripont, 1988. "Commitment through renegotiation-proof contacts with third parties," ULB Institutional Repository 2013/9569, ULB -- Universite Libre de Bruxelles.
  13. Haller, Hans & Holden, Steinar, 1997. "Ratification Requirement and Bargaining Power," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 825-51, November.
  14. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
  15. Harold Houba & Wilko Bolt, 1997. "Strategic bargaining in the variable threat game," Economic Theory, Springer, vol. 11(1), pages 57-77.
  16. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
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Cited by:
  1. Eyal Winter & Ignacio Garcia-Jurado & Jose Mendez-Naya & Luciano Mendez-Naya, 2009. "Mental Equilibrium and Rational Emotions," Discussion Paper Series dp521, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  2. Juan J. Vidal-Puga, 2004. "Bargaining with commitments," International Journal of Game Theory, Springer, vol. 33(1), pages 129-144, January.
  3. David McAdams & Michael Schwarz, 2007. "Credible Sales Mechanisms and Intermediaries," American Economic Review, American Economic Association, vol. 97(1), pages 260-276, March.
  4. Manzini, Paola & Mariotti, Marco, 2003. "A bargaining model of voluntary environmental agreements," Journal of Public Economics, Elsevier, vol. 87(12), pages 2725-2736, December.
  5. Paolo Balduzzi, 2004. "Delegation Games with Full Commitment," Working Papers 70, University of Milano-Bicocca, Department of Economics, revised Apr 2004.
  6. John Bennett & Elisabetta Iossa, 2006. "Delegation of Contracting in the Private Provision of Public Services," Review of Industrial Organization, Springer, vol. 29(1), pages 75-92, September.
  7. Roland Kirstein, 2009. "Optimal Delegation in Nash Bargaining," FEMM Working Papers 09001, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

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