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Sequential Bargaining in a Stochastic Environment

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  • Adriana Breccia

Abstract

This paper investigates the uniqueness of subgame perfect (SP) payoffs in a sequential bargaining game. Players are completely informed and the surplus to be allocated follows a geometric Brownian motion. This bargaining problem has not been analysed exhaustively in a stochastic environment. The aim of this paper is to provide a technique to identify the subgame perfect equilibria, i.e. the timing of the agreement and the SP payoffs at which agreement occurs. Even though the main focus is on the uniqueness of the equilibrium, we investigate other features of the equilibrium, such as the Pareto effciency of the outcome and the relation with the Nash axiomatic approach.

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  • Adriana Breccia, 2006. "Sequential Bargaining in a Stochastic Environment," Discussion Papers 06/07, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:06/07
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
    3. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    4. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475.
    5. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-399, March.
    6. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    7. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    8. Cripps, Martin W, 1997. "Bargaining and the Timing of Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 527-546, August.
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