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Bargaining and Conflict with Incomplete Information

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Abstract

This paper studies bargaining and conflict under incomplete information, provides an overview and a critical account of the literature on the topic and contributes with original research. We first revise models of mechanism design and sequential bargaining that take confrontation as final. Conflict and inefficiencies are to be expected in these models whenever parties have optimistic prospects on the outcome of the all-out conflict. After examining the causes and reasons for this optimism, we move to the analysis of the recent literature that considers the existence of limited confrontations that allow bargaining to resume. In the presence of private information, these limited conflicts convey information and thus become a bargaining instrument. The paper closes with a discussion on the related empirical literature, the challenges that it faces and some potential avenues for further research.

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Bibliographic Info

Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 191.

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Length: 34
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:edn:esedps:191

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Keywords: Bargaining; Conflict; Incomplete information; Power; Optimism; Hicks paradox; Uneven contenders paradox.;

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References

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  1. Santiago Sanchez-Pages, 2004. "The use of conflict as a bargaining tool against unsophisticated opponents," ESE Discussion Papers 99, Edinburgh School of Economics, University of Edinburgh.
  2. Schweizer, Urs, 1989. "Litigation and Settlement under Two-Sided Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 163-77, April.
  3. Cramton, Peter C & Tracy, Joseph S, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," American Economic Review, American Economic Association, vol. 82(1), pages 100-121, March.
  4. Helmut Bester & Karl Wärneryd, 2006. "Conflict and the Social Contract," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(2), pages 231-249, 07.
  5. Jackson, Matthew O. & Morelli, Massimo, . "Political bias and war," Working Papers 1247, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 93-108, January.
  7. Skaperdas, Stergios, 1996. "Contest Success Functions," Economic Theory, Springer, vol. 7(2), pages 283-90, February.
  8. Drew Fudenberg & David K. Levine & Jean Tirole, 1987. "Incomplete Information Bargaining with Outside Opportunities," Levine's Working Paper Archive 229, David K. Levine.
  9. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Lawrence M. Ausubel & Peter Cramton & Raymond J. Deneckere, 2002. "Bargaining with Incomplete Information," Papers of Peter Cramton 02barg, University of Maryland, Department of Economics - Peter Cramton, revised 12 Mar 2001.
  11. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  12. Hirshleifer, Jack, 1991. "The Technology of Conflict as an Economic Activity," American Economic Review, American Economic Association, vol. 81(2), pages 130-34, May.
  13. Powell, Robert, 1996. "Bargaining in the Shadow of Power," Games and Economic Behavior, Elsevier, vol. 15(2), pages 255-289, August.
  14. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, October.
  15. Kennan, John & Wilson, Robert, 1989. "Strategic Bargaining Models and Interpretation of Strike Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S87-130, Supplemen.
  16. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  17. Wittman, Donald, 1988. "Dispute Resolution, Bargaining, and the Selection of Cases for Trial: A Study of the Generation of Biased and Unbiased Data," The Journal of Legal Studies, University of Chicago Press, vol. 17(2), pages 313-52, June.
  18. Santiago Sánchez-Pagés, 2009. "Conflict as a Part of the Bargaining Process," Economic Journal, Royal Economic Society, vol. 119(539), pages 1189-1207, 07.
  19. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
  20. Gu, Wulong & Kuhn, Peter, 1998. "A Theory of Holdouts in Wage Bargaining," American Economic Review, American Economic Association, vol. 88(3), pages 428-49, June.
  21. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  22. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  23. Heifetz, Aviad & Segev, Ella, 2005. "Escalation and delay in protracted international conflicts," Mathematical Social Sciences, Elsevier, vol. 49(1), pages 17-37, January.
  24. Admati, Anat R & Perry, Motty, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 345-64, July.
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Cited by:
  1. Clara Ponsati & Santiago Sanchez-Pages, 2012. "Optimism and commitment: an elementary theory of bargaining and war," SERIEs, Spanish Economic Association, vol. 3(1), pages 157-179, March.

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