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Long-run Negotiations withDynamic Accumulation

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  • Francesca Flamini

Abstract

TMany negotiations are characterised by dynamic accumulation: current agreements affect future bargaining possibilities. We study such situations by using repeated bargaining games in which two parties can decide how much to invest and how to share the residual surplus for their own consumption. We show that there is a unique (stationary) Markov Perfect Equilibrium characterised by immediate agreement. Moreover, in equilibrium a relatively more patient party invests more than his opponent. However, being more patient can make a player worse off. In addition, we derive the conditions under which we obtain an efficient investment path. Our results are robust to different bargaining procedures, different rates of time preference and elasticities of substitution.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2007_23.

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Date of creation: Aug 2007
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Handle: RePEc:gla:glaewp:2007_23

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Keywords: exports; control function; GMM; matching; TFP; sample selection;

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  1. Sorger, Gerhard, 2006. "Recursive Nash bargaining over a productive asset," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2637-2659, December.
  2. Lockwood, Ben & Thomas, Jonathan P, 2002. "Gradualism and Irreversibility," Review of Economic Studies, Wiley Blackwell, vol. 69(2), pages 339-56, April.
  3. Abhinay Muthoo, . "Bargaining in a Long-Term Relationbship with Endogenous Termination," Economics Discussion Papers 422, University of Essex, Department of Economics.
  4. Gul, Faruk, 2001. "Unobservable Investment and the Hold-Up Problem," Econometrica, Econometric Society, vol. 69(2), pages 343-76, March.
  5. Muthoo, Abhinay, 1998. "Sunk Costs and the Inefficiency of Relationship-Specific Investment," Economica, London School of Economics and Political Science, vol. 65(257), pages 97-106, February.
  6. Che,Y.-K. & Sakovics,J., 2001. "A dynamic theory of holdup," Working papers 25, Wisconsin Madison - Social Systems.
  7. Francesca Flamini, . "First Things First? The Agenda Formation Problem for Multi-issue Committees," Working Papers 2001_19, Business School - Economics, University of Glasgow.
  8. Leith, Campbell & Malley, Jim, 2005. "Estimated general equilibrium models for the evaluation of monetary policy in the US and Europe," European Economic Review, Elsevier, vol. 49(8), pages 2137-2159, November.
  9. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  10. Amato, Jeffery D. & Laubach, Thomas, 2003. "Estimation and control of an optimization-based model with sticky prices and wages," Journal of Economic Dynamics and Control, Elsevier, vol. 27(7), pages 1181-1215, May.
  11. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475.
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