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Informational Loss in Bundled Bargaining

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  • Ying Chen

    ()
    (Arizona State University)

  • Hulya Eraslan

    ()
    (Johns Hopkins University)

Abstract

We analyze a legislative bargaining game over an ideological and a distributive issue. Legislators are privately informed about their ideological positions. Communication takes place before a proposal is offered and majority rule voting determines the outcome. We compare the outcome of the "bundled bargaining" game in which the legislators negotiate over both issues together to that of the "separate bargaining" game in which the legislators negotiate over the issues one at a time. Although bundled bargaining allows the proposer to use transfers as an instrument for compromise on the ideological issue, we identify two disadvantages of bundled bargaining under asymmetric information: (i) risk of losing the surplus (failure to reach agreement on ideology results in the dissipation of the surplus under bundled bargaining, but not under separate bargaining); (ii) informational loss (the legislators may convey less information in the bundled bargaining game). Even when there is no risk of losing the surplus, the informational loss from bundling can be sufficiently large that it makes the proposer worse off.

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Bibliographic Info

Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1234.

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Length: 34 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:koc:wpaper:1234

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  1. Joseph Farrell and Robert Gibbons., 1988. "Cheap Talk Can Matter in Bargaining," Economics Working Papers 8863, University of California at Berkeley.
  2. Chakraborty, Archishman & Harbaugh, Rick, 2003. "Cheap talk comparisons in multi-issue bargaining," Economics Letters, Elsevier, vol. 78(3), pages 357-363, March.
  3. Jackson, Matthew O. & Moselle, Boaz, 1998. "Coalition and Party Formation in a Legislative Voting Game," Working Papers 1036, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Diermeier, Daniel & Merlo, Antonio, 1998. "Government turnover in parliamentary democracies," Bulletins 7453, University of Minnesota, Economic Development Center.
  5. Ying Chen & Hülya Eraslan, 2010. "Rhetoric in Legislative Bargaining with Asymmetric Information," Economics Working Paper Archive 563, The Johns Hopkins University,Department of Economics.
  6. Bård Harstad, 2007. "Harmonization and Side Payments in Political Cooperation," American Economic Review, American Economic Association, vol. 97(3), pages 871-889, June.
  7. Steven A. Matthews & Andrew Postlewaite, 1987. "Pre-Play Communication in Two-Person Sealed-Bid Double Auctions," Discussion Papers 744R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Gilligan, Thomas W & Krehbiel, Keith, 1987. "Collective Decisionmaking and Standing Committees: An Informational Rationale for Restrictive Amendment Procedures," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 287-335, Fall.
  9. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  10. Matthews, Steven A, 1989. "Veto Threats: Rhetoric in a Bargaining Game," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 347-69, May.
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