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An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game

  • Kurtis Swope

    ()

    (United States Naval Academy)

  • Pamela Schmitt

    ()

    (United States Naval Academy)

  • John Cadigan

    ()

    (Gettysburg College)

  • Robert Shupp

    ()

    (Michigan State University)

When an economic exchange requires agreement by multiple independent parties, the potential exists for an individual to strategically delay agreement in an attempt to capture a greater share of the surplus created by the exchange. This “holdout problem” is a common feature of the land assembly literature because development frequently requires the assembly of multiple parcels of land. We use experimental methods to examine holdout behavior in a laboratory bargaining game that involves multi-person groups, complementary exchanges, and holdout externalities. The results of six treatments that vary the bargaining institution, number of bargaining periods, and the cost of delay demonstrate that holdout is common across institutions and is, on average, a payoff-improving strategy for responders. Both proposers and responders take a more aggressive initial bargaining stance in multi-period bargaining treatments relative to single-period treatments, but take a less aggressive bargaining stance when delay is costly. Nearly all exchanges eventually occur in our multi-period treatments, leading to higher overall efficiency relative to the single-period treatments, both with and without delay costs.

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File URL: http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp21.pdf
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Paper provided by United States Naval Academy Department of Economics in its series Departmental Working Papers with number 21.

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Length: 24 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:usn:usnawp:21
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