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Bargaining with Incomplete Information: An Infinite-Horizon Model with Two-Sided Uncertainty

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Abstract

The resolution of any bargaining conflict depends crucially on the relative urgency of the agents to reach agreement and the information each agent has about the others' preferences. This paper explores, within the context of an infinite-horizon bargaining model with two-sided uncertainty, how timing and information affect the rational behaviour of agents when commitment is not possible. Since the bargainers are uncertain about whether trade is desirable, they must communicate some of their private information before an agreement can be reached. This need for learning, due to incomplete information about preferences, results in bargaining inefficiencies: trade often occurs after costly delay. Thus, the model provides an explanation for the inefficient bargaining behaviour that appears to occur often in practice.

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File URL: http://www.cramton.umd.edu/papers1984-1989/84res-bargaining-with-incomplete-information.pdf
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Bibliographic Info

Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 84res.

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Length: 15 pages
Date of creation: 1984
Date of revision: 09 Jun 1998
Publication status: Published in Review of Economic Studies, 51:4, October 1984, pages 579-593.
Handle: RePEc:pcc:pccumd:84res

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Keywords: Bargaining; Delay; Incomplete Information;

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References

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  1. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
  3. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  4. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
  5. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
  6. Sobel, Joel & Takahashi, Ichiro, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 411-26, July.
  7. Ausubel, Lawrence M. & Cramton, Peter & Deneckere, Raymond J., 2002. "Bargaining with incomplete information," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 50, pages 1897-1945 Elsevier.
  8. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
  9. Drew Fudenberg & David Levine, 1982. "Sequential Equilibria of Finite and Infinite Horizon Games," UCLA Economics Working Papers 242, UCLA Department of Economics.
  10. Peter Cramton, 1985. "Sequential Bargaining Mechanisms," Papers of Peter Cramton 85roth, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
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Citations

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Cited by:
  1. William Fuchs & Andrzej Skrzypacz, 2010. "Bargaining with Arrival of New Traders," American Economic Review, American Economic Association, vol. 100(3), pages 802-36, June.
  2. Kamdem, Cyrille Bergaly & Galtier, Franck & Gockowski, James & Helene, David-Benz & Egg, Johny & Dia, Bernadette Kamgnia, 2010. "What determines the price received by cocoa farmers in Cameroon? An empirical analysis based on bargaining theory," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 5(2), December.
  3. Xavier Jarque & Clara Ponsat?Author-Name: Jozsef Sakovics, 2001. "Mediation: Incomplete information bargaining with," UFAE and IAE Working Papers 502.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Lemke, Robert J., 2004. "Dynamic bargaining with action-dependent valuations," Journal of Economic Dynamics and Control, Elsevier, vol. 28(9), pages 1847-1875, July.
  5. Kaya, Ayça & Liu, Qingmin, 0. "Transparency and price formation," Theoretical Economics, Econometric Society.
  6. Menezes, Flavio M., 1996. "Multiple-unit English auctions," European Journal of Political Economy, Elsevier, vol. 12(4), pages 671-684, December.
  7. Mark A. Satterthwaite & Steven R. Williams, 1988. "The Rate of Convergence to Efficiency In The Buyer's BidDouble Auction As The Market Becomes Large," Discussion Papers 741, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Attila Ambrus & Ben Greiner & Parag A. Pathak, 2014. "How Individual Preferences are Aggregated in Groups: An Experimental Study," Discussion Papers 2014-30, School of Economics, The University of New South Wales.
  9. Teng, Jimmy, 2012. "Solving Two Sided Incomplete Information Games with Bayesian Iterative Conjectures Approach," MPRA Paper 40061, University Library of Munich, Germany, revised 12 Jul 2012.
  10. Schweinzer, Paul, 2010. "Sequential bargaining with common values," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 109-121, January.
  11. Moon, Yongma & Yao, Tao & Park, Sungsoon, 2011. "Price negotiation under uncertainty," International Journal of Production Economics, Elsevier, vol. 134(2), pages 413-423, December.
  12. Abreu, Dilip & Pearce, David G. & Stacchetti, Ennio, 0. "One-sided uncertainty and delay in reputational bargaining," Theoretical Economics, Econometric Society.
  13. Jarque, Xavier & Ponsati, Clara & Sakovics, Jozsef, 2003. "Mediation: incomplete information bargaining with filtered communication," Journal of Mathematical Economics, Elsevier, vol. 39(7), pages 803-830, September.
  14. Wang, Ruqu, 2001. "Optimal pricing strategy for durable-goods monopoly," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 789-804, May.
  15. Antonio Merlo & François Ortalo-Magné, 2002. "Bargaining over Residential Real Estate: Evidence from England (Third Version)," PIER Working Paper Archive 04-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Sep 2002.

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