IDEAS home Printed from https://ideas.repec.org/p/unm/umamet/2010013.html
   My bibliography  Save this paper

Optimal Value Commitment in Bilateral Bargaining

Author

Listed:
  • Britz Volker

    (METEOR)

Abstract

Two impatient players bargain about the division of a pie under a standard bargaining protocol in discrete time with time-invariant recognition probabilities. Instantaneous utility is linear, but players discount the future by a constant factor. Before bargaining starts, a player can commit to a utility level. This commitment is perfectly binding initially. However, once so much time has passed that even receiving the entire pie would yield less than thecommitted level of utility, then the commitment becomes void. Intuitively, this simply means that no player can remain committed to something which has become impossible. If only one player can commit, his subgame--perfect equilibrium payoff varies between one half and the entire pie, depending on the distribution of proposal power. If both players commit sequentially before the bargaining starts, we find a unique perfect equilibrium division. If both players commit simultaneously, there is a range of perfect equilibrium divisions. However, no player obtains less than one third of the pie, even with arbitrarily small proposal power. The equal split is the only division supported by a perfect equilibrium for any choice of the discount factor and the recognition probabilities.

Suggested Citation

  • Britz Volker, 2010. "Optimal Value Commitment in Bilateral Bargaining," Research Memorandum 013, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  • Handle: RePEc:unm:umamet:2010013
    as

    Download full text from publisher

    File URL: https://cris.maastrichtuniversity.nl/portal/files/1494535/content
    Download Restriction: no

    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Antoni Cunyat, 2004. "The optimal degree of commitment in a negotiation with a deadline," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(2), pages 455-465, January.
    3. Kambe, Shinsuke, 1999. "Bargaining with Imperfect Commitment," Games and Economic Behavior, Elsevier, vol. 28(2), pages 217-237, August.
    4. 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.
    5. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
    6. Vicent Calabuig & Antoni Cunyat & Gonzalo Olcina, 2002. "Commitment and choice of partner in a negotiation with a deadline," Spanish Economic Review, Springer;Spanish Economic Association, vol. 4(1), pages 61-78.
    7. Muthoo, Abhinay, 1992. "Revocable Commitment and Sequential Bargaining," Economic Journal, Royal Economic Society, vol. 102(411), pages 378-387, March.
    8. Li, Duozhe, 2007. "Bargaining with history-dependent preferences," Journal of Economic Theory, Elsevier, vol. 136(1), pages 695-708, September.
    9. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-1364, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    microeconomics ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:unm:umamet:2010013. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Leonne Portz). General contact details of provider: http://edirc.repec.org/data/meteonl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.