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Non-cooperative Bargaining for Side Payments Contract

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  • Akira Okada

    (Kyoto University)

Abstract

We present a non-cooperative sequential bargaining game for side payments contracting. Players voluntarily participate in negotiations. If any player does not participate, then renegotiation will take place in the next round, given an on-going contract. We show that if the stop- ping probability of negotiations is sufficiently small, then there exists an efficient Markov perfect equilibrium where all players immediately par- ticipate in negotiations and agree to the Nash bargaining solution. The efficiency result is strengthened by the asymptotically efficient one that in every Markov perfect equilibrium, all players participate in negotia- tions through a process of renegotiations in the long run with probability one. Finally, we illustrate international negotiations for climate change as an application of the result.

Suggested Citation

  • Akira Okada, 2018. "Non-cooperative Bargaining for Side Payments Contract," KIER Working Papers 983, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:983
    as

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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP983.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Coase theorem; contract; efficiency; externality; Nash bar- gaining solution; non-cooperative bargaining; side payments;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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