Efficiency in Negotiation: Complexity and Costly Bargaining
Even with complete information, two-person bargaining can generate a large number of equilibria, involving disagreements and inefficiencies, in (i) negotiation games where disagreement payoffs are endogenously determined (Busch and Wen, 1995) and (ii) costly bargaining games where there are transaction/participation costs (Anderlini and Felli, 2001). We show that when the players have (at the margin) a preference for less complex strategies only efficient equilibria survive in negotiation games (with sufficiently patient players) while, in sharp contrast, it is only the most inefficient outcome involving perpetual disagreement that survives in costly bargaining games. We also find that introducing small transaction costs to negotiation games dramatically alters the selection result: perpetual disagreement becomes the only feasible equilibrium outcome. Thus, in both alternating-offers bargaining games and repeated games with exit options (via bargaining and contracts), complexity considerations establish that the Coase Theorem is valid if and only if there are no transaction/participation costs.
|Date of creation:||Feb 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44-20- 76316429
Fax: 44-20- 76316416
Web page: http://www.ems.bbk.ac.uk/
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kalyan Chatterjee & Hamid Sabourian, 2000.
"N-Person Bargaining and Strategic Complexity,"
Econometric Society World Congress 2000 Contributed Papers
0517, Econometric Society.
- Anderlini, L. & Felli, L., 1999.
"Costly bargaining and renegotiation,"
Discussion Paper Series In Economics And Econometrics
9910, Economics Division, School of Social Sciences, University of Southampton.
- Luca Anderlini & Leonardo Felli, 1998. "Costly bargaining and renegotiation," LSE Research Online Documents on Economics 3592, London School of Economics and Political Science, LSE Library.
- Luca Anderlini & Leonardo Felli, 1999. "Costly Bargaining and Renegotiation," CESifo Working Paper Series 213, CESifo Group Munich.
- Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
- repec:att:wimass:9603 is not listed on IDEAS
- Fernandez, Raquel & Glazer, Jacob, 1991.
"Striking for a Bargain between Two Completely Informed Agents,"
American Economic Review,
American Economic Association, vol. 81(1), pages 240-52, March.
- Raquel Fernandez & Jacob Glazer, 1989. "Striking for a Bargain Between Two Completely Informed Agents," NBER Working Papers 3108, National Bureau of Economic Research, Inc.
- Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
- Ehud Kalai & William Stanford, 1986.
"Finite Rationality and Interpersonal Complexity in Repeated Games,"
679, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Kalai, Ehud & Stanford, William, 1988. "Finite Rationality and Interpersonal Complexity in Repeated Games," Econometrica, Econometric Society, vol. 56(2), pages 397-410, March.
- Hamid Sabourian & Jihong Lee, 2004.
"Complexity and Efficiency in Repeated Games with Negotiation,"
Econometric Society 2004 Far Eastern Meetings
401, Econometric Society.
- Hamid Sabourian & Jihong Lee, 2004. "Complexity and Efficiency in Repeated Games with Negotiation," Econometric Society 2004 North American Summer Meetings 58, Econometric Society.
- Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-81, November.
- Piccione Michele & Rubinstein Ariel, 1993. "Finite Automata Play a Repeated Extensive Game," Journal of Economic Theory, Elsevier, vol. 61(1), pages 160-168, October.
- Binmore, K. & Piccione, M. & Samuelson, L., 1996.
"Evolutionary Stability in Alternating-Offers Bargaining Games,"
9603r, Wisconsin Madison - Social Systems.
- Rubinstein, Ariel, 1986.
"Finite automata play the repeated prisoner's dilemma,"
Journal of Economic Theory,
Elsevier, vol. 39(1), pages 83-96, June.
- Ariel Rubinstein, 1997. "Finite automata play the repeated prisioners dilemma," Levine's Working Paper Archive 1639, David K. Levine.
- Ausubel, Lawrence M. & Cramton, Peter & Deneckere, Raymond J., 2002.
"Bargaining with incomplete information,"
Handbook of Game Theory with Economic Applications,
in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 50, pages 1897-1945
- Chatterjee, K. & Sabourian, H., 1997.
"Multiperson Bargaining and Strategic Complexity,"
Cambridge Working Papers in Economics
9733, Faculty of Economics, University of Cambridge.
- Martin J. Osborne & Ariel Rubinstein, 1994.
"A Course in Game Theory,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262650401, June.
- Binmore, Ken & Piccione, Michele & Samuelson, Larry, 1998. "Evolutionary Stability in Alternating-Offers Bargaining Games," Journal of Economic Theory, Elsevier, vol. 80(2), pages 257-291, June.
- Piccione, Michele, 1992. "Finite automata equilibria with discounting," Journal of Economic Theory, Elsevier, vol. 56(1), pages 180-193, February.
- Busch, L-A. & Wen, Q., 1991.
"Perfect Equilibria in a Negotiation Model,"
University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers
9108, University of Western Ontario, The Centre for the Study of International Economic Relations.
- Douglas Gale & Hamid Sabourian, 2005. "Complexity and Competition," Econometrica, Econometric Society, vol. 73(3), pages 739-769, 05.
- Sakovics Jozsef, 1993. "Delay in Bargaining Games with Complete Information," Journal of Economic Theory, Elsevier, vol. 59(1), pages 78-95, February.
- Piccione, M. & Rubinstein, A., 1992. "Finite Automata Play A Repeated Extensive Game," Papers 5-92, Tel Aviv.
- Haller, Hans & Holden, Steinar, 1990. "A letter to the editor on wage bargaining," Journal of Economic Theory, Elsevier, vol. 52(1), pages 232-236, October.
- Sabourian, Hamid, 2004. "Bargaining and markets: complexity and the competitive outcome," Journal of Economic Theory, Elsevier, vol. 116(2), pages 189-228, June.
- Perry Motty & Reny Philip J., 1993. "A Non-cooperative Bargaining Model with Strategically Timed Offers," Journal of Economic Theory, Elsevier, vol. 59(1), pages 50-77, February.
When requesting a correction, please mention this item's handle: RePEc:bbk:bbkefp:0505. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.