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Disagreement and Authority

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  • Tore Ellingsen

    ()
    (Stockholm School of Economics†)

  • Topi Miettinen

    ()
    (Max Planck Institute of Economics, Jena, Germany.)

Abstract

Can two negotiators fail to agree when both the size of the surplus and the rationality of the negotiators are common knowledge? We show that the answer is affrmative. When the negotiators can make irrevocable commitments at a low but positive cost, the unique symmetric equilibrium entails disagreement with high probability. In the unique pair of pure strategy equilibria, one party gets all the surplus. Even though we impose no constraints on side-payments, effcient compromises are unattainable. A strongly asymmetric authority relationship is thus the only viable alternative to costly conflict.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2007-037.

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Date of creation: 18 Jul 2007
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Handle: RePEc:jrp:jrpwrp:2007-037

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Keywords: Authority; Bargaining; Commitment; Disagreement; Transaction Costs;

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  1. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-37, May.
  2. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  3. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-23, May.
  4. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
  5. Olivier Compte & Philippe Jehiel, 2004. "Gradualism in Bargaining and Contribution Games," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 975-1000, October.
  6. Güth, W. & Ritzberger, K. & Damme, E.E.C. van, 2002. "On the Nash Bargaining Solution with Noise," Discussion Paper 2002-79, Tilburg University, Center for Economic Research.
  7. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
  8. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  9. Kambe, Shinsuke, 1999. "Bargaining with Imperfect Commitment," Games and Economic Behavior, Elsevier, vol. 28(2), pages 217-237, August.
  10. 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.
  11. Ching-to Albert Ma & Michael Manove, 1991. "Bargaining with Deadlines and Imperfect Player Control," Papers 0007, Boston University - Industry Studies Programme.
  12. Ellingsen, Tore, 1997. "The Evolution of Bargaining Behavior," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 581-602, May.
  13. Olivier Compte & Philippe Jehiel, 2002. "On the Role of Outside Options in Bargaining with Obstinate Parties," Econometrica, Econometric Society, vol. 70(4), pages 1477-1517, July.
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