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Gradual Bargaining in Decentralized Asset Markets

Author

Listed:
  • Guillaume Rocheteau

    (University of California, Irvine)

  • Tai-Wei Hu

    (University of Bristol)

  • Lucie Lebeau

    (University of California, Irvine)

  • Younghwan In

    (KAIST)

Abstract

We introduce a new approach to bargaining, with strategic and axiomatic foundations, into models of decentralized asset markets. According to this approach, which encompasses the Nash (1950) solution as a special case, bilateral negotiations follow an agenda that partitions assets into bundles to be sold sequentially. We construct two alternating-offer games consistent with this approach and characterize their subgame perfect equilibria. We show the revenue of the asset owner is maximized when assets are sold one infinitesimal unit at a time. In a general equilibrium model with endogenous asset holdings, gradual bargaining reduces asset misallocation and prevents market breakdowns. (Copyright: Elsevier)

Suggested Citation

  • Guillaume Rocheteau & Tai-Wei Hu & Lucie Lebeau & Younghwan In, 2021. "Gradual Bargaining in Decentralized Asset Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 72-109, October.
    • Handle: RePEc:red:issued:20-33
    DOI: 10.1016/j.red.2020.10.008
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    2. John Duffy & Lucie Lebeau & Daniela Puzzello, 2021. "Bargaining Under Liquidity Constraints: Nash vs. Kalai in the Laboratory," Working Papers 2113, Federal Reserve Bank of Dallas.
    3. Rocheteau, Guillaume & Wang, Lu, 2023. "Endogenous liquidity and volatility," Journal of Economic Theory, Elsevier, vol. 210(C).
    4. van Buggenum, Hugo, 2023. "Coexistence of money and interest-bearing bonds," Journal of Economic Dynamics and Control, Elsevier, vol. 153(C).
    5. Paredes-Belmar, Germán & Montero, Elizabeth & Lüer-Villagra, Armin & Marianov, Vladimir & Araya-Sassi, Claudio, 2022. "Vehicle routing for milk collection with gradual blending: A case arising in Chile," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1403-1416.
    6. van Buggenum, Hugo, 2021. "Banks and financial markets in microfounded models of money," Other publications TiSEM f6e8dc53-9a1b-4f66-9cef-b, Tilburg University, School of Economics and Management.
    7. Benita, Francisco & Nasini, Stefano & Nessah, Rabia, 2022. "A cooperative bargaining framework for decentralized portfolio optimization," Journal of Mathematical Economics, Elsevier, vol. 103(C).

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    More about this item

    Keywords

    Decentralized asset markets; Bargaining with an agenda; Nash program;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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