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Non-cooperative Bargaining for Side Payments Contract

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  • Akira Okada

    () (Kyoto University)

Abstract

We present a non-cooperative sequential bargaining game for side payments contracting. Players voluntarily participate in negotiations. If any player does not participate, then renegotiation will take place in the next round, given an on-going contract. We show that if the stop- ping probability of negotiations is sufficiently small, then there exists an efficient Markov perfect equilibrium where all players immediately par- ticipate in negotiations and agree to the Nash bargaining solution. The efficiency result is strengthened by the asymptotically efficient one that in every Markov perfect equilibrium, all players participate in negotia- tions through a process of renegotiations in the long run with probability one. Finally, we illustrate international negotiations for climate change as an application of the result.

Suggested Citation

  • Akira Okada, 2018. "Non-cooperative Bargaining for Side Payments Contract," KIER Working Papers 983, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:983
    as

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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP983.pdf
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    References listed on IDEAS

    as
    1. Okada, Akira, 1996. "A Noncooperative Coalitional Bargaining Game with Random Proposers," Games and Economic Behavior, Elsevier, vol. 16(1), pages 97-108, September.
    2. Palfrey, Thomas R. & Rosenthal, Howard, 1984. "Participation and the provision of discrete public goods: a strategic analysis," Journal of Public Economics, Elsevier, vol. 24(2), pages 171-193, July.
    3. Maruta, Toshimasa & Okada, Akira, 2012. "Dynamic group formation in the repeated prisonerʼs dilemma," Games and Economic Behavior, Elsevier, vol. 74(1), pages 269-284.
    4. Ray, Debraj, 2007. "A Game-Theoretic Perspective on Coalition Formation," OUP Catalogue, Oxford University Press, number 9780199207954.
    5. Kalyan Chatterjee & Bhaskar Dutia & Debraj Ray & Kunal Sengupta, 2013. "A Noncooperative Theory of Coalitional Bargaining," World Scientific Book Chapters,in: Bargaining in the Shadow of the Market Selected Papers on Bilateral and Multilateral Bargaining, chapter 5, pages 97-111 World Scientific Publishing Co. Pte. Ltd..
    6. Matthew O. Jackson & Simon Wilkie, 2005. "Endogenous Games and Mechanisms: Side Payments Among Players," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 543-566.
    7. Okada, Akira, 2011. "Coalitional bargaining games with random proposers: Theory and application," Games and Economic Behavior, Elsevier, vol. 73(1), pages 227-235, September.
    8. Kyle Hyndman & Debraj Ray, 2007. "Coalition Formation with Binding Agreements," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1125-1147.
    9. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    10. Daniel J. Seidmann & Eyal Winter, 1998. "A Theory of Gradual Coalition Formation," Review of Economic Studies, Oxford University Press, vol. 65(4), pages 793-815.
    11. Ellingsen, Tore & Paltseva, Elena, 2012. "The private provision of excludable public goods: An inefficiency result," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 658-669.
    12. Tore Ellingsen & Elena Paltseva, 2016. "Confining the Coase Theorem: Contracting, Ownership, and Free-Riding," Review of Economic Studies, Oxford University Press, vol. 83(2), pages 547-586.
    13. Reinhard Selten, 1973. "A Simple Model of Imperfect Competition, where 4 are Few and 6 are Many," Center for Mathematical Economics Working Papers 008, Center for Mathematical Economics, Bielefeld University.
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    More about this item

    Keywords

    Coase theorem; contract; efficiency; externality; Nash bar- gaining solution; non-cooperative bargaining; side payments;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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