IDEAS home Printed from https://ideas.repec.org/a/spr/dyngam/v14y2024i2d10.1007_s13235-023-00499-7.html
   My bibliography  Save this article

Evolution, Investment, and Bargaining

Author

Listed:
  • Jack Robles

    (Victoria University, Wellington)

Abstract

We present an evolutionary model which allows us to study the impact relationship-specific investment has on bargaining. Agents are matched to play an investment and bargaining game. During bargaining, agents have an outside option to form a new relationship, but in exercising this option loses their current investment. We find that the stochastically stable post-investment bargaining convention is dependent on the cost of investment. In particular, the larger the cost of investment, the lower is the share of gross surplus that is received. This stands in contrast with previous studies. In addition, we find that there is under-investment. We disentangle the forces which lead to these two results.

Suggested Citation

  • Jack Robles, 2024. "Evolution, Investment, and Bargaining," Dynamic Games and Applications, Springer, vol. 14(2), pages 428-452, May.
    • Handle: RePEc:spr:dyngam:v:14:y:2024:i:2:d:10.1007_s13235-023-00499-7
    DOI: 10.1007/s13235-023-00499-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13235-023-00499-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s13235-023-00499-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ellingsen, Tore & Robles, Jack, 2002. "Does Evolution Solve the Hold-Up Problem?," Games and Economic Behavior, Elsevier, vol. 39(1), pages 28-53, April.
    2. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-460, March.
    3. Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, vol. 86(3), pages 478-501, June.
    4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    5. Andreozzi, Luciano, 2012. "Property rights and investments: An evolutionary approach," Games and Economic Behavior, Elsevier, vol. 74(1), pages 1-11.
    6. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-259, April.
    7. Robles Jack, 2011. "Stochastic Stability in Finitely Repeated Two Player Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-24, April.
    8. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-837, September.
    9. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
    10. Bernheim, B Douglas & Whinston, Michael D, 1998. "Incomplete Contracts and Strategic Ambiguity," American Economic Review, American Economic Association, vol. 88(4), pages 902-932, September.
    11. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
    12. Giorgio Negroni & Lidia Bagnoli, 2017. "On the coevolution of social norms in primitive societies," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 12(3), pages 635-667, October.
    13. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March.
    14. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
    15. Herbert Dawid and Bentley MacLeod, 2001. "Holdup and the Evolution of Bargaining Conventions," Computing in Economics and Finance 2001 104, Society for Computational Economics.
    16. Andreozzi, Luciano, 2010. "An evolutionary theory of social justice: Choosing the right game," European Journal of Political Economy, Elsevier, vol. 26(3), pages 320-329, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dawid, Herbert & MacLeod, W. Bentley, 2008. "Hold-up and the evolution of investment and bargaining norms," Games and Economic Behavior, Elsevier, vol. 62(1), pages 26-52, January.
    2. Göller, Daniel & Stremitzer, Alexander, 2014. "Breach remedies inducing hybrid investments," International Review of Law and Economics, Elsevier, vol. 37(C), pages 26-38.
    3. Brooks, Richard & Stremitzer, Alexander, 2009. "On and Off Contract Remedies," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 290, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. Alexander Stremitzer, 2012. "Standard Breach Remedies, Quality Thresholds, and Cooperative Investments," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(2), pages 337-359.
    5. Lewis A. Kornhauser & W. Bentley MacLeod, 2012. "Contracts between Legal Persons [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    6. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March.
    7. Ellingsen, Tore & Robles, Jack, 2002. "Does Evolution Solve the Hold-Up Problem?," Games and Economic Behavior, Elsevier, vol. 39(1), pages 28-53, April.
    8. Surajeet Chakravarty & Bentley MacLeod, 2004. "On the Efficiency of Standard Contracts the Case of Construction," Working Papers 874, Princeton University, Department of Economics, Industrial Relations Section..
    9. M'hand Fares, 2006. "Renegotiation Design and Contract Solutions to the Hold‐Up Problem," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 731-756, December.
    10. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    11. L. Bagnoli & G. Negroni, 2013. "Egalitarianism. An evolutionary perspective," Working Papers wp888, Dipartimento Scienze Economiche, Universita' di Bologna.
    12. Surajeet Chakravarty & W. Bentley MacLeod, 2004. "On the Efficiency of Standard Contracts the Case of Construction," Working Papers 874, Princeton University, Department of Economics, Industrial Relations Section..
    13. Göller, Daniel & Stremitzer, Alexander, 2009. "Breach Remedies Including Hybrid Investments," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 282, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    14. Surajeet Chakravarty & W. Bentley MacLeod, 2009. "Contracting in the shadow of the law," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 533-557, September.
    15. Yeon-Koo Che & Jozsef Sakovics, 2006. "The Hold-up Problem," Edinburgh School of Economics Discussion Paper Series 142, Edinburgh School of Economics, University of Edinburgh.
    16. Alan Schwartz, 2004. "The Law and Economics of Costly Contracting," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(1), pages 2-31, April.
    17. Anke S. Kessler & Christoph Lülfesmann, 2006. "The Theory of Human Capital Revisited: on the Interaction of General and Specific Investments," Economic Journal, Royal Economic Society, vol. 116(514), pages 903-923, October.
    18. Mehrdad Vahabi, 1999. "From Walrasian General Equilibrium to Incomplete Contracts: Making Sense of Institutions," Post-Print halshs-03704424, HAL.
    19. Manuel Willington, 2013. "Hold Up Under Costly Litigation and Imperfect Courts of Law," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(5), pages 1023-1055, October.
    20. Watson, Joel & Wignall, Chris, 2009. "Hold-Up and Durable Trading Opportunities," University of California at San Diego, Economics Working Paper Series qt8p8284wg, Department of Economics, UC San Diego.
    21. Watson, Joel & Buzard, Kristy, 2009. "Contract, Renegotiation, and Hold Up: General Results on the Technology of Trade and Investment," University of California at San Diego, Economics Working Paper Series qt3923q7kz, Department of Economics, UC San Diego.

    More about this item

    Keywords

    Sunk costs; Nash demand game; Evolution; Stochastic stability; Hold-up problem;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:dyngam:v:14:y:2024:i:2:d:10.1007_s13235-023-00499-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.