Optimal deadlines for agreements
We provide a welfare analysis of the deadline effect in a repeated negotiation game in which costly delay can produce information that improves the quality of the decision. We characterize equilibrium strategies and the evolution of beliefs in continuous time, and study how the length of the negotiation horizon affects players’ behavior and welfare. The optimal deadline is positive if and only if the ex ante probability that the players disagree on the preferred decision is neither too high nor too low. When it is positive, the optimal deadline is given by the shortest time that would allow efficient information aggregation in equilibrium, which is increasing in the ex ante probability of disagreement and is finitely long.
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