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Perfect Equilibria in a Negotiation Model with Different Time Preferences

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  • Harold Houba

    ()
    (Vrije Universiteit and Tinbergen Institute)

  • Quan Wen

    ()
    (Department of Economics, Vanderbilt University)

Abstract

The players behave quite differently in the negotiation model under different time preferences than under common time preferences. Conventional analysis in this literature relies on the key presumption that all continuation payoffs are bounded from above by the bargaining frontier resulted from stationary contracts. When players have different time preferences, however, intertemporal trade may lead to continuation payoffs above the bargaining frontier. In this paper, we provide a thorough study of this problem when players have different time preferences. Our results tie up all the previous findings, and also clarify the confusion that arose in the past.

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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0706.

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Date of creation: Mar 2006
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Handle: RePEc:van:wpaper:0706

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Bargaining; negotiation; time preference; endogenous threats;

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  1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  2. Houba, Harold & Bolt, Wilko, 2000. "Holdouts, backdating and wage negotiations," European Economic Review, Elsevier, Elsevier, vol. 44(9), pages 1783-1800, October.
  3. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, American Economic Association, vol. 81(1), pages 240-52, March.
  4. Houba, Harold, 1997. "The policy bargaining model," Journal of Mathematical Economics, Elsevier, vol. 28(1), pages 1-27, August.
  5. Haller, Hans & Holden, Steinar, 1990. "A letter to the editor on wage bargaining," Journal of Economic Theory, Elsevier, Elsevier, vol. 52(1), pages 232-236, October.
  6. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, Econometric Society, vol. 52(6), pages 1351-64, November.
  7. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195300796, October.
  8. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, Econometric Society, vol. 21(1), pages 128-140, April.
  9. Busch, L-A. & Wen, Q., 1991. "Perfect Equilibria in a Negotiation Model," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers, University of Western Ontario, The Centre for the Study of International Economic Relations 9108, University of Western Ontario, The Centre for the Study of International Economic Relations.
  10. Ehud Lehrer & Ady Pauzner, 1999. "Repeated Games with Differential Time Preferences," Econometrica, Econometric Society, Econometric Society, vol. 67(2), pages 393-412, March.
  11. Bolt, Wilko, 1995. "Striking for a Bargain between Two Completely Informed Agents: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 85(5), pages 1344-47, December.
  12. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, Elsevier, vol. 39(1), pages 251-269, June.
  13. Bewley, Truman F., 1972. "Existence of equilibria in economies with infinitely many commodities," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(3), pages 514-540, June.
  14. Houba, Harold & Wen, Quan, 2006. "Different time preferences and non-stationary contracts in negotiations," Economics Letters, Elsevier, Elsevier, vol. 91(2), pages 273-279, May.
  15. Busch, Lutz-Alexander & Wen, Quan, 2001. "Negotiation games with unobservable mixed disagreement actions," Journal of Mathematical Economics, Elsevier, vol. 35(4), pages 563-579, July.
  16. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521576475.
  17. Takahashi, Satoru, 2005. "Infinite horizon common interest games with perfect information," Games and Economic Behavior, Elsevier, Elsevier, vol. 53(2), pages 231-247, November.
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