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Delegated Bargaining and Renegotiation

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Abstract

We examine the commitment effect of delegated bargaining when the delegation contract is renegotiable. We consider a seller who can either bargain face-to-face with a prospective buyer or delegate bargaining to an intermediary. The intermediary is able to interrupt negotiating with the buyer to renegotiate the delegation contract. We show that the time cost of renegotiation prevents a full elimination of the commitment effect of delegation. Indeed, there are always gains from delegation when the players are sufficiently patient. An extension to a search market environment shows that the gains from delegation are negatively related to the efficiency of search.

Suggested Citation

  • Helmut Bester & Jozsef Sakovics, 2000. "Delegated Bargaining and Renegotiation," Edinburgh School of Economics Discussion Paper Series 61, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:esedps:61
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    15. repec:fth:harver:1519 is not listed on IDEAS
    16. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-1150, September.
    17. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-637, May.
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    Cited by:

    1. John Bennett & Elisabetta Iossa, 2006. "Delegation of Contracting in the Private Provision of Public Services," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(1), pages 75-92, September.
    2. Manzini, Paola & Mariotti, Marco, 2003. "A bargaining model of voluntary environmental agreements," Journal of Public Economics, Elsevier, vol. 87(12), pages 2725-2736, December.
    3. David McAdams & Michael Schwarz, 2007. "Credible Sales Mechanisms and Intermediaries," American Economic Review, American Economic Association, vol. 97(1), pages 260-276, March.
    4. Aristotelis Boukouras, 2015. "Separation of Ownership and Control: Delegation as a Commitment Device," Discussion Papers in Economics 15/02, Division of Economics, School of Business, University of Leicester.
    5. Gabrielsen, Tommy Staahl & Roth, Stefan, 2009. "Delegated bargaining in distribution channels," Australasian marketing journal, Elsevier, vol. 17(3), pages 133-141.
    6. Sjaak Hurkens & Nir Vulkan, 2015. "Dynamic matching and bargaining with heterogeneous deadlines," International Journal of Game Theory, Springer;Game Theory Society, vol. 44(3), pages 599-629, August.
    7. Hongbin Cai & Walter Cont, 2004. "Agency Problems and Commitment in Delegated Bargaining," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 703-729, December.
    8. Juan J. Vidal-Puga, 2004. "Bargaining with commitments," International Journal of Game Theory, Springer;Game Theory Society, vol. 33(1), pages 129-144, January.
    9. Paredes, Ricardo D & Sanchez, Jose Miguel, 2004. "Government Concession Contracts in Chile: The Role of Competition in the Bidding Process," Economic Development and Cultural Change, University of Chicago Press, vol. 53(1), pages 215-234, October.
    10. Eric Picard & Alexander Zimper, 2022. "Moving from a bad to a good pricing regime: The South African private health care market," South African Journal of Economics, Economic Society of South Africa, vol. 90(2), pages 260-276, June.
    11. Daniel Cardona & Clara Ponsatí, 2015. "Representing a democratic constituency in negotiations: delegation versus ratification," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 45(2), pages 399-414, September.
    12. Eyal Winter & Ignacio Garcia-Jurado & Jose Mendez-Naya & Luciano Mendez-Naya, 2009. "Mental Equilibrium and Rational Emotions," Discussion Paper Series dp521, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    13. Paolo Balduzzi, 2004. "Delegation Games with Full Commitment," Working Papers 70, University of Milano-Bicocca, Department of Economics, revised Apr 2004.
    14. Christiansen, Nels, 2013. "Strategic delegation in a legislative bargaining model with pork and public goods," Journal of Public Economics, Elsevier, vol. 97(C), pages 217-229.
    15. Roland Kirstein, 2009. "Optimal Delegation in Nash Bargaining," FEMM Working Papers 09001, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    16. Eyal Winter & Luciano Méndez-Naya & Ignacio García-Jurado, 2017. "Mental Equilibrium and Strategic Emotions," Management Science, INFORMS, vol. 63(5), pages 1302-1317, May.

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    More about this item

    Keywords

    bargaining; commitment; delegation; renegotiation; search;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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