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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- Robert Townsend, 1979.
"Optimal contracts and competitive markets with costly state verification,"
45, Federal Reserve Bank of Minneapolis.
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- Ariel Rubinstein, 2010.
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Levine's Working Paper Archive
661465000000000387, David K. Levine.
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Other publications TiSEM
bd598a8f-f017-4cab-a9ed-8, Tilburg University, School of Economics and Management.
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"Bargaining with Private Information,"
90-01rev, University of Iowa, Department of Economics.
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in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 50, pages 1897-1945
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- Border, Kim C & Sobel, Joel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 525-40, October.
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