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The Negotiators Who Knew Too Much: Transaction Costs and Incomplete Information

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  • Schmitz, Patrick W.

Abstract

Two parties can at some future date 2 negotiate about whether or not to collaborate in order to generate a surplus. Yet, the negotiation stage will be reached only if at date 1 both parties pay their respective transaction costs. We show that the expected total surplus may be larger when at date 1 the parties do not yet know the size of the surplus that can be generated at date 2. Moreover, joint ownership can be optimal under incomplete information even when it would be suboptimal under complete information.

Suggested Citation

  • Schmitz, Patrick W., 2016. "The Negotiators Who Knew Too Much: Transaction Costs and Incomplete Information," CEPR Discussion Papers 11276, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11276
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    References listed on IDEAS

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    Cited by:

    1. Luca Anderlini & Leonardo Felli & Giovanni Immordino, 2016. "Costly Pretrial Agreements," CSEF Working Papers 449, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

    More about this item

    Keywords

    Bargaining; incomplete information; joint ownership; Property rights; transaction costs;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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