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Disagreement and Authority

  • Tore Ellingsen

    ()

    (Stockholm School of Economics†)

  • Topi Miettinen

    ()

    (Max Planck Institute of Economics, Jena, Germany.)

Can two negotiators fail to agree when both the size of the surplus and the rationality of the negotiators are common knowledge? We show that the answer is affrmative. When the negotiators can make irrevocable commitments at a low but positive cost, the unique symmetric equilibrium entails disagreement with high probability. In the unique pair of pure strategy equilibria, one party gets all the surplus. Even though we impose no constraints on side-payments, effcient compromises are unattainable. A strongly asymmetric authority relationship is thus the only viable alternative to costly conflict.

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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2007-037.

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Date of creation: 18 Jul 2007
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Handle: RePEc:jrp:jrpwrp:2007-037
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  1. Ching-to Albert Ma & Michael Manove, 1991. "Bargaining with Deadlines and Imperfect Player Control," Papers 0007, Boston University - Industry Studies Programme.
  2. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  3. Ellingsen, Tore, 1995. "The Evolution of Bargaining Behavior," SSE/EFI Working Paper Series in Economics and Finance 61, Stockholm School of Economics.
  4. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-37, May.
  5. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
  6. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
  7. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-23, May.
  8. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
  9. Guth, Werner & Ritzberger, Klaus & van Damme, Eric, 2004. "On the Nash bargaining solution with noise," European Economic Review, Elsevier, vol. 48(3), pages 697-713, June.
  10. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  11. Olivier Compte & Philippe Jehiel, 2004. "Gradualism in Bargaining and Contribution Games," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 975-1000, October.
  12. Olivier Compte & Philippe Jehiel, 2002. "On the Role of Outside Options in Bargaining with Obstinate Parties," Econometrica, Econometric Society, vol. 70(4), pages 1477-1517, July.
  13. Kambe, Shinsuke, 1999. "Bargaining with Imperfect Commitment," Games and Economic Behavior, Elsevier, vol. 28(2), pages 217-237, August.
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