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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- Kennan, John & Wilson, Robert, 1993.
"Bargaining with Private Information,"
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"Stable equilibria and forward induction,"
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- Robert Townsend, 1979.
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45, Federal Reserve Bank of Minneapolis.
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Levine's Working Paper Archive
252, David K. Levine.
- 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.
- 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
- 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.
- 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.
- 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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