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Delegated Bargaining and Renegotiation

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  • Helmut Bester
  • Jozsef Sakovics

    ()

Abstract

We examine the commitment effect of delegated bargaining when the delegation contract is renegotiable. We consider a seller who can either bargain face-to-face with a prospective buyer or delegate bargaining to an intermediary. The intermediary is able to interrupt negotiating with the buyer to renegotiate the delegation contract. We show that the time cost of renegotiation prevents a full elination of the commitment effect of delegation. Indeed, there are always gains from delegation when the players are sufficiently patient. An extension to search market environment shows that the gains from delegation are negatively related to the efficiency of search.

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Bibliographic Info

Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 61.

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Length: 23
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:edn:esedps:61

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Keywords: bargaining; commitment; delegation; renegotiation; search;

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References

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  1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  2. repec:fth:harver:1519 is not listed on IDEAS
  3. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  4. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Mathias Dewatripont, 1988. "Commitment through renegotiation-proof contacts with third parties," ULB Institutional Repository 2013/9569, ULB -- Universite Libre de Bruxelles.
  6. Michael L. Katz., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Economics Working Papers 91-172, University of California at Berkeley.
  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. Bester, H., 1994. "A bargaining model of financial intermediation," Discussion Paper 1994-15, Tilburg University, Center for Economic Research.
  9. Harold Houba & Wilko Bolt, 1997. "Strategic bargaining in the variable threat game," Economic Theory, Springer, vol. 11(1), pages 57-77.
  10. Bester, Helmut, 1994. "Price commitment in search markets," Journal of Economic Behavior & Organization, Elsevier, vol. 25(1), pages 109-120, September.
  11. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  12. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
  13. 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.
  14. 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.
  15. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-37, May.
  16. Muthoo, Abhinay, 1992. "Revocable Commitment and Sequential Bargaining," Economic Journal, Royal Economic Society, vol. 102(411), pages 378-87, March.
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Cited by:
  1. Elisabetta Iossa, 2005. "Delegation of Contracting in the Private Provision of Public Services," The Centre for Market and Public Organisation 05/125, Department of Economics, University of Bristol, UK.
  2. David McAdams & Michael Schwarz, 2007. "Credible Sales Mechanisms and Intermediaries," American Economic Review, American Economic Association, vol. 97(1), pages 260-276, March.
  3. Juan Vidal-Puga, 2003. "Bargaining with commitments," Game Theory and Information 0306002, EconWPA.
  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. 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.
  6. Paolo Balduzzi, 2004. "Delegation Games with Full Commitment," Working Papers 70, University of Milano-Bicocca, Department of Economics, revised Apr 2004.
  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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