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Bargaining with Imperfect Enforcement

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Author Info
White, Lucy
Williams, Mark
Abstract

The game-theoretic bargaining literature insists on non-cooperative bargaining procedure but allows 'cooperative' implementation of agreements. The effect of this is to allow free-reign of bargaining power with no check upon it. In reality, courts cannot implement agreements costlessly, and parties often prefer to use 'non-cooperative' implementation. We present a bargaining model which incorporates the idea that agreements may be enforced non-cooperatively. We show that this has a substantial impact in limiting the inequality of agreements, and results in a non-montonicity of the discount rate. The general need to maintain incentives for co-operation means it may appear that 'other-regarding' elements enter agents' utility functions. This helps us to understand why experimental subjects might begin negotiations anticipating 'fair' bargains. The model also explains why some parties may have incentives to deliberately write incomplete contracts which cannot be enforced in a court of law.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5495.

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Date of creation: Feb 2006
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Handle: RePEc:cpr:ceprdp:5495

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Related research
Keywords: enforcement; incomplete contracts; non-cooperative bargaining; strength in weakness;

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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This page was last updated on 2009-12-31.

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