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Long-run Negotiations withDynamic Accumulation

  • Francesca Flamini

TMany negotiations are characterised by dynamic accumulation: current agreements affect future bargaining possibilities. We study such situations by using repeated bargaining games in which two parties can decide how much to invest and how to share the residual surplus for their own consumption. We show that there is a unique (stationary) Markov Perfect Equilibrium characterised by immediate agreement. Moreover, in equilibrium a relatively more patient party invests more than his opponent. However, being more patient can make a player worse off. In addition, we derive the conditions under which we obtain an efficient investment path. Our results are robust to different bargaining procedures, different rates of time preference and elasticities of substitution.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2007_23.

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Date of creation: Aug 2007
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Handle: RePEc:gla:glaewp:2007_23
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  1. Che,Y.-K. & Sakovics,J., 2001. "A dynamic theory of holdup," Working papers 25, Wisconsin Madison - Social Systems.
  2. Flamini, Francesca, 2007. "First things first? The agenda formation problem for multi-issue committees," Journal of Economic Behavior & Organization, Elsevier, vol. 63(1), pages 138-157, May.
  3. repec:cup:cbooks:9780521576475 is not listed on IDEAS
  4. Ben Lockwood & Jonathan P. Thomas, 1999. "Gradualism and Irreversibility," CSGR Working papers series 28/99, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
  5. Campbell leith & Jim Malley, 2002. "Estimated General Equilibrium Models for the Evaluation of Monetary Policy in the US and Europe," Working Papers 2001_16, Business School - Economics, University of Glasgow.
  6. F. Gul, 2000. "Unobservable Investment and the Hold-Up Problem," Princeton Economic Theory Papers 00s10, Economics Department, Princeton University.
  7. Amato, Jeffery D. & Laubach, Thomas, 2003. "Estimation and control of an optimization-based model with sticky prices and wages," Journal of Economic Dynamics and Control, Elsevier, vol. 27(7), pages 1181-1215, May.
  8. Muthoo, Abhinay, 1998. "Sunk Costs and the Inefficiency of Relationship-Specific Investment," Economica, London School of Economics and Political Science, vol. 65(257), pages 97-106, February.
  9. Abhinay Muthoo, . "Bargaining in a Long-Term Relationbship with Endogenous Termination," Economics Discussion Papers 422, University of Essex, Department of Economics.
  10. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  11. Sorger, Gerhard, 2006. "Recursive Nash bargaining over a productive asset," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2637-2659, December.
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