Delay in the alternatingoffers model of bargainin

Authors: Juan J VidalPuga

Publish Date: 2008/04/26

Volume: 37, Issue: 4, Pages: 457-474

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Abstract

Alternating offers bargaining has been extensively used to model twosided negotiations The celebrated model of Rubinstein Econometrica 50197–109 1982 has provided a formal justification for equitable payoff division A typical assumption of these models under risk is that the termination event means a complete and irrevocable breakdown in negotiations In this paper the meaning of termination is reinterpreted as the imposition to finish negotiations immediately Specifically bargaining terminates when the last offer becomes definitive While Rubinstein’s model predicts an immediate agreement with stationary strategies we show that the same payoff allocation is attainable under nonstationary strategies Moreover the payoffs in delayed equilibria are potentially better for the proposer than those in which agreement is immediately reachedTwo previous versions of this paper both titled “Reinterpreting the meaning of breakdown” have circulated as an IVIE working paper WPAD 200622 at the University of Alicante and as a RGEA working paper 307 at the University of Vigo respectively A first version titled “Why does delay happens in reallife bargaining” has benefited from helpful comments from Clara Ponsatí Usual disclaimer applies This research was partially conducted while the author was visiting the Department of Economic Analysis at the University of Alicante Financial support by the Spanish Ministerio de Ciencia y Tecnología and FEDER through grant SEJ200507637C0201/ECON and Xunta de Galicia through grants PGIDIT06PXIC300184PN and PGIDT06PXIB362390PR is also gratefully acknowledged

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