Optimal deadlines for agreements
AbstractWe provide a welfare analysis of the deadline effect in a repeated negotiation game in which costly delay can produce information that improves the quality of the decision. We characterize equilibrium strategies and the evolution of beliefs in continuous time, and study how the length of the negotiation horizon affects players’ behavior and welfare. The optimal deadline is positive if and only if the ex ante probability that the players disagree on the preferred decision is neither too high nor too low. When it is positive, the optimal deadline is given by the shortest time that would allow efficient information aggregation in equilibrium, which is increasing in the ex ante probability of disagreement and is finitely long.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 855.
Date of creation: 2010
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- 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
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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