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A Model of Negotiation, Not Bargaining

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  • Eric Rasmusen

    (Indiana University School of Business)

  • .

Abstract

Bargaining models ask how a surplus is split between two parties in bilateral monopoly. Much of real-world negotiation involves complications to the original split which may or may not increase the welfare of both parties. The parties must decide which complications to propose, how closely to examine the other side's proposals, and when to accept them. This type of negotiation raises welfare, rather than reducing it. This paper models negotiation as a two-period auditing game, and find a variety of plausible equilibria, some of which can be pareto-ranked. Expectations are highly important, and precommitment can increase welfare substantially.

Suggested Citation

  • Eric Rasmusen & ., 1995. "A Model of Negotiation, Not Bargaining," Game Theory and Information 9506001, University Library of Munich, Germany, revised 14 Jun 1995.
    • Handle: RePEc:wpa:wuwpga:9506001
    Note: A 64KB LaTeX file. A postscript file is available on request from Erasmuse@Indiana.edu.
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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