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Tough negotiations: Bilateral bargaining with durable commitments

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  • Ellingsen, Tore
  • Miettinen, Topi

Abstract

We offer a tractable model of tough negotiations and delayed agreement. The setting is an infinite horizon bilateral bargaining game in which negotiators can make strategic commitments to durable offers. Commitments decay stochastically, but uncommitted negotiators can make new commitments. The game's unique Markov Perfect equilibrium outcome takes the form of a war of attrition: Negotiators initially commit to incompatible offers, but agreement occurs once a negotiator's commitment decays. If commitments decay more quickly, the terms of the agreement become more equal. In expectation, more patient, committed, and less risk averse negotiators obtain a larger fraction of the surplus.

Suggested Citation

  • Ellingsen, Tore & Miettinen, Topi, 2014. "Tough negotiations: Bilateral bargaining with durable commitments," Games and Economic Behavior, Elsevier, vol. 87(C), pages 353-366.
  • Handle: RePEc:eee:gamebe:v:87:y:2014:i:c:p:353-366
    DOI: 10.1016/j.geb.2014.05.016
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    References listed on IDEAS

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    More about this item

    Keywords

    Bargaining; Commitment; Disagreement; War of attrition;

    JEL classification:

    • 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

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