Randomly Available Outside Options in Bargaining
AbstractWe consider an extension of the standard Rubinstein model where both players are randomly allowed to leave the negotiation after a rejection, in which case they obtain a payoff known value. We show that, when the value of the outside opportunities is of intermediate size, there exist a continuum of subgame-perfect equilibrium outcomes, including some with delayed agreements. Considering outside opportunities of significant value, we prove that efficient delays arise caused by bargainers' aspirations in waiting for their outside option rather than by threats. Moreover, if taking the outside option decreases the probability that the opponent receives an outside option in the future, then it is possible that exactly two equilibrium payoffs coexist. In this latter case, inefficiencies may be created by agreeing too early.
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Bibliographic InfoPaper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 63.
Date of creation: Apr 2004
Date of revision:
Bargaining; outside options;
Other versions of this item:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-04-25 (All new papers)
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