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Robust Bilateral Trade and Mediated Bargaining

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  • Jernej Copic
  • Clara Ponsatí

Abstract

We consider bilateral trade problems subject to incomplete information on the reservation values of the agents. We address negotiations where the communication of proposals takes place through the filter of a third party, a mediator: traders submit proposals over continuous time to the mediator that receives bids and keeps them secret until they are compatible. A regular robust equilibrium (RRE) is an (undominated) ex post equilibrium where (with sufficient delay) all compatible traders reach agreement. We present a characterization of RRE for risk-neutral traders that discount the future at the same exponential rate. We show how to compute RRE strategy profiles, and we explicitly display the unique one where agreements split the net surplus in equal shares. Our results support the claim that bargaining through a mediator is an effective procedure to promote efficiency. (JEL: C78, D02, D74, D82) (c) 2008 by the European Economic Association.

Suggested Citation

  • Jernej Copic & Clara Ponsatí, 2008. "Robust Bilateral Trade and Mediated Bargaining," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 570-580, 04-05.
    • Handle: RePEc:tpr:jeurec:v:6:y:2008:i:2-3:p:570-580
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    Cited by:

    1. Čopič, Jernej & Ponsatí, Clara, 2016. "Optimal robust bilateral trade: Risk neutrality," Journal of Economic Theory, Elsevier, vol. 163(C), pages 276-287.
    2. Kneeland, Terri, 2022. "Mechanism design with level-k types: Theory and an application to bilateral trade," Journal of Economic Theory, Elsevier, vol. 201(C).

    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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