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Bargaining with costly competition for the right to propose

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  • Houba, Harold
  • Li, Duozhe
  • Wen, Quan

Abstract

We study a bargaining model in which players compete for the right to propose in every period, hence the bargaining protocol is determined endogenously. This model admits multiple equilibria, including many with delayed agreements and costly competition. We develop a general self-generating technique to characterize the extreme equilibria, and hence, the entire set of equilibrium payoffs. Our technique resembles an optimal contract design problem with all the sequential rationality conditions being treated as the incentive constraints. By means of an example, we show that as the discount factor goes to one, a player could obtain almost the entire surplus in his best equilibrium, while players’ competition efforts diminish to zero. We also find that some asymmetric equilibria are more efficient than the stationary equilibrium.

Suggested Citation

  • Houba, Harold & Li, Duozhe & Wen, Quan, 2022. "Bargaining with costly competition for the right to propose," Journal of Mathematical Economics, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:mateco:v:98:y:2022:i:c:s030440682100121x
    DOI: 10.1016/j.jmateco.2021.102558
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    References listed on IDEAS

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    Cited by:

    1. Andrzej Baranski & Ernesto Reuben, 2023. "Competing for Proposal Rights: Theory and Experimental Evidence," Working Papers 20220085, New York University Abu Dhabi, Department of Social Science, revised Mar 2023.

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