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On the Role of Outside Options in Bargaining with Obstinate Parties

  • Olivier Compte


    (CERAS, Ecole Nationale des Ponts et Chaussees, Paris, France)

  • Philippe Jehiel


    (CERAS, Ecole Nationale des Ponts et Chaussees, Paris, France, and UCL, London, U.K.)

The presence of obstinate types in bargaining has been shown to alter dramatically the bargaining equilibrium strategies and outcomes. This paper shows that outside options may cancel out the effect of obstinacy in bargaining. When parties have access to stationary outside options, we show that when opting out is preferable to accepting the inflexible demand of the other party, there is a unique Perfect Bayesian Equilibrium in which each party reveals himself as rational as soon as possible. A similar conclusion holds when outside options may only be available at a later date or when only one party has access to an outside option. Copyright The Econometric Society 2002.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 70 (2002)
Issue (Month): 4 (July)
Pages: 1477-1517

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Handle: RePEc:ecm:emetrp:v:70:y:2002:i:4:p:1477-1517
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