A Model of Negotiation, not Bargainig
Bargaining models ask how a surplus is split between two parties in bilateral monopoly. Much of real-world negotiation involves complications to the original split which may or may not increase the welfare of both parties. The parties must decide which complications to propose, how closely to examine the other side's proposals, and when to accept them. This type of negotiation raises welfare, rather than reducing it. This paper models negotiation as a two-period auditing game, and find a variety of plausible equilibria, some of which can be pareto-ranked. Expectations are highly important, and precommitment can increase welfare substantially.
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|Date of creation:||1994|
|Date of revision:|
|Contact details of provider:|| Postal: Indiana University, Center for Econometric Model Research, Department of Economics; Bloomington, IN 47405.|
Web page: http://www.indiana.edu/~econweb/
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- Bac, Mehmet & Raff, Horst, 1996. "Issue-by-Issue Negotiations: The Role of Information and Time Preference," Games and Economic Behavior, Elsevier, vol. 13(1), pages 125-134, March.
- Ariel Rubinstein, 2010.
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Levine's Working Paper Archive
252, David K. Levine.
- Robert M. Townsend, 1979.
"Optimal contracts and competitive markets with costly state verification,"
45, Federal Reserve Bank of Minneapolis.
- Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
- James K. Sebenius, 1992. "Negotiation Analysis: A Characterization and Review," Management Science, INFORMS, vol. 38(1), pages 18-38, January.
- Dilip Mookherjee & Ivan Png, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 399-415.
- 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
- Kathryn E. Spier, 1992. "Incomplete Contracts and Signalling," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 432-443, Autumn.
- Kim C. Border & Joel Sobel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 525-540.
- Avery Katz, 1990. "Your Terms or Mine? The Duty to Read the Fine Print in Contracts," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 518-537, Winter.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
- Kennan, John & Wilson, Robert, 1993.
"Bargaining with Private Information,"
Journal of Economic Literature,
American Economic Association, vol. 31(1), pages 45-104, March.
- van Damme,Eric, 1987.
"Stable equilibria and forward induction,"
Discussion Paper Serie A
128, University of Bonn, Germany.
- Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
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