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Creative Bargaining

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Author Info

  • Frankel, David M.

Abstract

We examine what happens if, as players bargain, they can exert costly effort to expand the set of possible proposals. With side payments, new ideas influence the size of the pie but not its division. The benefits of one player's creativity are shared with the other player, so effort is inefficiently low. Without side payments, new ideas do influence the distribution, so players inefficiently limit their search to ideas that favor them. Getting an idea makes an agreement more likely, but it also makes the other player's ideas less likely to be adopted. Consequently, effort can be either excessive or suboptimal.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11927.

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Date of creation: 01 Jan 1998
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Publication status: Published in Games and Economic Behavior 1998,, pp. 43-53
Handle: RePEc:isu:genres:11927

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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References

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  1. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-59, April.
  2. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March.
  3. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  4. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 93-108, January.
  5. 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.
  6. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
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Cited by:
  1. Shingo Ishiguro, 2007. "Holdup, Search and Inefficiency," Discussion Papers in Economics and Business 07-13, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  2. Wait, A., 2001. "Delays in Bargaining With Incompelete Contracts," Department of Economics - Working Papers Series 809, The University of Melbourne.
  3. Elie Appelbaum, 2009. "Alternating Offers Union-Firm Bargaining: Order of Play and Efficiency," Working Papers 2009_02, York University, Department of Economics.
  4. Appelbaum, Elie, 2011. "Union-firm bargaining: Order of play and efficiency," Games and Economic Behavior, Elsevier, vol. 71(2), pages 235-245, March.

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