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An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game

  • John Cadigan


    (Department of Economics, Gettysburg College, 300 North Washington Street, Gettysburg, PA 17325, USA)

  • Pamela Schmitt


    (Department of Economics, U.S. Naval Academy, 589 McNair Road, Annapolis, MD 21402, USA)

  • Robert Shupp


    (Department of Agricultural Economics, Michigan State University, 211E Agricultural Hall, East Lansing, MI 48824, USA)

  • Kurtis Swope1


    (Department of Economics, U.S. Naval Academy, 589 McNair Road, Annapolis, MD 21402, USA)

When an economic exchange requires agreement by multiple independent parties, the potential exists for an individual to strategically delay agreement in an attempt to capture a greater share of the surplus created by the exchange. This ‘‘holdout problem’’ is a common feature of the land-assembly literature because development frequently requires the assembly of multiple parcels of land. We use experimental methods to examine holdout behavior in a laboratory bargaining game that involves multi-person groups, complementary exchanges, and holdout externalities. The results of six treatments that vary the bargaining institution, number of bargaining periods, and cost of delay demonstrate that holdout is common across institutions and is, on average, a payoff-improving strategy for responders. Both proposers and responders take a more aggressive initial bargaining stance in multi-period bargaining treatments relative to single-period treatments, but take a less aggressive bargaining stance when delay is costly. Nearly all exchanges eventually occur in our multi-period treatments, leading to higher overall efficiency relative to the single-period treatments, both with and without delay costs.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 76 (2009)
Issue (Month): 2 (October)
Pages: 344-457

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Handle: RePEc:sej:ancoec:v:76:2:y:2009:p:344-457
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