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Outside Options in a Bargaining Model with Decay in the Size of the Cake (Now published in Economics Letters 40 (1992), pp.417-421.)

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  • Alberto Dalmazzo

Abstract

The paper analyses a simple Rubinstein-type bargaining model in which there is no discounting and the cake decays over time at a positive rate. As a consequence, outside options enter players' unique Perfect Equilibrium payoffs. It is then shown that these payoffs, when the interval between two subsequent calls shrinks to zero, take the "split-the-difference" form. (These results generalise easily to the case of three-party bargaining). This can justify the common practice, in labour economics, of deriving wage-equation expressions from Nash-maximands in which the status-quo points are shifted to the outside option level.

Suggested Citation

  • Alberto Dalmazzo, 1992. "Outside Options in a Bargaining Model with Decay in the Size of the Cake (Now published in Economics Letters 40 (1992), pp.417-421.)," STICERD - Theoretical Economics Paper Series 239, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    • Handle: RePEc:cep:stitep:239
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    Cited by:

    1. Vannetelbosch, Vincent J., 1996. "Testing between alternative wage-employment bargaining models using Belgian aggregate data," Labour Economics, Elsevier, vol. 3(1), pages 43-64, August.
    2. Jennifer C. Smith, 1996. "Effet du pouvoir de négociation et du marché local du travail sur la détermination des salaires," Économie et Prévision, Programme National Persée, vol. 126(5), pages 1-17.
    3. Bughin, Jacques & Vannini, Stefano, 1995. "Strategic direct investment under unionized oligopoly," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 127-145, March.
    4. Randolph Sloof, 2005. "Finite Horizon Bargaining With Outside Options And Threat Points," Theory and Decision, Springer, vol. 57(2), pages 109-142, March.
    5. Corrado Andini, 2013. "How well does a dynamic Mincer equation fit NLSY data? Evidence based on a simple wage-bargaining model," Empirical Economics, Springer, vol. 44(3), pages 1519-1543, June.
    6. Smith, Jennifer C., 1996. "Bargaining power and local labour market in°uences on wage determination," Economic Research Papers 268704, University of Warwick - Department of Economics.

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