Search with Adverse Selection
The bargaining process is a critical part of the model. Due to the information asymmetry, we cannot use the simple surplus sharing solutions that are common in the search literature. Instead, we assume that the buyer has all the bargaining power and offers a general mechanism which the seller can either accept or reject. Thus, we model bargaining as a principal-agent problem, with the buyer being the informed principal as in Myerson (1983).
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