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Bargaining with History Dependent Preferences

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  • Duozhe Li
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    Abstract

    We study perfect information bilateral bargaining game with an infinite alternating-offers procedure, in which we add an assumption of history dependent preference. A player will devalue a share which gives her strictly lower discounted utility than what she was offered in earlier stages of the bargaining, namely, a ``worse off'' outcome. In a strong version of the assumption, each player prefers impasse to any ``worse off'' outcome. We characterize the essentially unique subgame perfect equilibrium path under the assumption. The equilibrium entails considerable delay and efficiency loss. As the players become infinitely patient, the efficiency loss goes to one half, and the equilibrium share goes to Nash solution. The assumption can also be weakened. We provide a sufficient condition on the extent of devaluation under which the feature of the equilibrium from strong assumption remains

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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 516.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:nasm04:516

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    Keywords: Bargaining; Delay; History Dependent Preference; Endogenous Commitment;

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    1. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
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    3. 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.
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    17. Ching-to Albert Ma & Michael Manove, 1991. "Bargaining with Deadlines and Imperfect Player Control," Papers 0007, Boston University - Industry Studies Programme.
    18. Olivier Compte & Philippe Jehiel, 2004. "Gradualism in Bargaining and Contribution Games," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 975-1000.
    19. P. Reny, 2010. "Common Belief and the Theory of Games with Perfect Information," Levine's Working Paper Archive 386, David K. Levine.
    20. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
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    Cited by:
    1. Aleksandra Gregoric & Saso Polanec & Sergeja Slapnicar, 2008. "Pay me Right: Reference Values and Executive Compensation," LICOS Discussion Papers 22008, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

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