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Efficiency and Voluntary Implementation in Markets with Repeated Pairwise Bargaining

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Author Info

  • Matthew O. Jackson

    (California Institute of Technology)

  • Thomas R. Palfrey

    (California Institute of Technology)

Abstract

We examine a simple bargaining setting, where heterogeneous buyers and sellers are repeatedly matched with each other. We begin by characterizing efficiency in such a dynamic setting, and discuss how it differs from efficiency in a centralized static setting. We then study the allocations which can result in equilibrium when the matched buyers and sellers bargain through some extensive game form. We take an implementation approach, characterizing the possible allocation rules which result as the extensive game form is varied. We are particularly concerned with the impact of making trade voluntary: imposing individual rationality {\sl on and off} the equilibrium path. No buyer or seller consumates an agreement which leaves them worse off than the discounted expected value of their future rematching in the market. Finally, we compare and contrast the efficient allocations with those that could ever arise as the equlibria of some voluntary negotiation procedure.

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File URL: http://128.118.178.162/eps/game/papers/9711/9711003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 9711003.

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Length: 38 pages
Date of creation: 25 Nov 1997
Date of revision:
Handle: RePEc:wpa:wuwpga:9711003

Note: Type of Document - pdf; prepared on pc-latex; to print on postscript; pages: 38; figures: none. comments welcome
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Web page: http://128.118.178.162

Related research

Keywords: implementation; bargaining; matching; search; individual rationality;

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References

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  1. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Baliga, Sandeep & Sjostrom, Tomas, 1999. "Interactive Implementation," Games and Economic Behavior, Elsevier, vol. 27(1), pages 38-63, April.
  3. Nabil Al-Najjar, 1996. "Aggregation and the Law of Large Numbers in Economies with a Continuum of Agents," Discussion Papers 1160, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Saijo, Tatsuyoshi & Tatamitani, Yoshikatsu & Yamato, Takehiko, 1996. "Toward Natural Implementation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 949-80, November.
  5. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258 National Bureau of Economic Research, Inc.
  6. JoseHerrero, Maria & Srivastava, Sanjay, 1992. "Implementation via backward induction," Journal of Economic Theory, Elsevier, vol. 56(1), pages 70-88, February.
  7. Chakravorty, Bhaskar & Corchon, Luis C. & Wilkie, Simon, 2006. "Credible implementation," Games and Economic Behavior, Elsevier, vol. 57(1), pages 18-36, October.
  8. Ariel Rubinstein & Asher Wolinsky, 1990. "Renegotiation-Proof Implementation and Time Preferences," STICERD - Theoretical Economics Paper Series /1990/215, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  9. Matthew 0. Jackson, 1989. "Implementation in Undominated Strategies - A Look at Bounded Mechanisms," Discussion Papers 833, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Baliga, S. & Corchon, L.C. & Sjostrom, T., 1995. "The Theory of Implemetation when the Planner is a PLayer," Cambridge Working Papers in Economics 9512, Faculty of Economics, University of Cambridge.
  11. Ma, Ching-to & Moore, John & Turnbull, Stephen, 1988. "Stopping agents from "cheating"," Journal of Economic Theory, Elsevier, vol. 46(2), pages 355-372, December.
  12. Abreu, Dilip & Matsushima, Hitoshi, 1992. "Virtual Implementation in Iteratively Undominated Strategies: Complete Information," Econometrica, Econometric Society, vol. 60(5), pages 993-1008, September.
  13. Matthew O. Jackson, 1990. "Undominated Nash Implementation in Bounded Mechanisms," Discussion Papers 966, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. McLennan, Andrew & Sonnenschein, Hugo, 1991. "Sequential Bargaining as a Noncooperative Foundation for Walrasian Equilibrium," Econometrica, Econometric Society, vol. 59(5), pages 1395-1424, September.
  15. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
  16. Matthew O. Jackson & Sandro Brusco, 1997. "The Optimal Design of a Market," Discussion Papers 1186, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  18. Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
  19. Maskin, Eric & Sjostrom, Tomas, 2002. "Implementation theory," Handbook of Social Choice and Welfare, in: K. J. Arrow & A. K. Sen & K. Suzumura (ed.), Handbook of Social Choice and Welfare, edition 1, volume 1, chapter 5, pages 237-288 Elsevier.
  20. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  21. Gale, Douglas M, 1986. "Bargaining and Competition Part II: Existence," Econometrica, Econometric Society, vol. 54(4), pages 807-18, July.
  22. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
  23. Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February.
  24. Sakovics, J. & Ponsati, C., 1995. "Rubinstein Batgaining with Tow-Sided Options," UFAE and IAE Working Papers 318.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  25. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-82, March.
  26. Neil E. Gretsky & Joseph M. Ostroy & William R. Zame, 1990. "The Nonatomic Assignment Model," UCLA Economics Working Papers 605, UCLA Department of Economics.
  27. Bhaskar Dutta & Arunava Sen & Rajiv Vohra, 1994. "Nash implementation through elementary mechanisms in economic environments," Review of Economic Design, Springer, vol. 1(1), pages 173-203, December.
  28. Ehud Kalai & John O. Ledyard, 1997. "Repeated Implementation," Discussion Papers 1205, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Citations

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Cited by:
  1. Matthew O. Jackson & Alison Watts, 2005. "Social Games: Matching and the Play of Finitely Repeated Games," Game Theory and Information 0503003, EconWPA.
  2. Matthew O. Jackson & Sandro Brusco, 1997. "The Optimal Design of a Market," Discussion Papers 1186, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Alexander Raskovich, 2006. "Ordered Bargaining," EAG Discussions Papers 200610, Department of Justice, Antitrust Division.
  4. Nadia Burani, 2008. "Matching, search and intermediation with two-sided heterogeneity," Review of Economic Design, Springer, vol. 12(2), pages 75-117, June.
  5. Ettore Damiano & Hao Li, 2004. "Unraveling of Dynamic Sorting," Econometric Society 2004 Latin American Meetings 72, Econometric Society.
  6. Calvo-Armengol, Antoni, 2003. "A decentralized market with trading links," Mathematical Social Sciences, Elsevier, vol. 45(1), pages 83-103, February.
  7. Pablo Amorós, 2003. "Nash Implementation and Uncertain Renegotiation," Economic Working Papers at Centro de Estudios Andaluces E2003/27, Centro de Estudios Andaluces.
  8. Paul Healy, 2010. "Equilibrium participation in public goods allocations," Review of Economic Design, Springer, vol. 14(1), pages 27-50, March.
  9. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
  10. Jackson, Matthew O., 1999. "A Crash Course in Implementation Theory," Working Papers 1076, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Jackson, Matthew O. & Palfrey, Thomas R., 1999. "Voluntary Implementation," Working Papers 1077, California Institute of Technology, Division of the Humanities and Social Sciences.

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