Randomly available outside options in bargaining

Clara Ponsatí, József Sákovics

Research output: Contribution to journalArticleResearchpeer-review

5 Citations (Scopus)

Abstract

© 2001, Springer-Verlag Berlin Heidelberg. We consider an extension of the standard Rubinstein model where both players are randomly allowed to leave the negotiation after a rejection, in which case they obtain a payoff of known value. We show that, when the value of the outside opportunities is of intermediate size, there exist a continuum of subgame-perfect equilibrium outcomes, including some with delayed agreements. Considering outside opportunities of significant value, we prove that efficient delays arise caused by the bargainers' aspirations, in waiting for their outside, option rather than by threats. Moreover, if taking the outside option decreases the probability that the opponent receives an outside option in the future, then it is possible that exactly two equilibrium payoffs coexist. In this latter case, inefficiencies may be created by agreeing too early.
Original languageEnglish
Pages (from-to)231-252
JournalSpanish Economic Review
Volume3
Issue number4
DOIs
Publication statusPublished - 1 Dec 2001

Keywords

  • JEL Classification: C78
  • Key words: Bargaining, outside options

Fingerprint Dive into the research topics of 'Randomly available outside options in bargaining'. Together they form a unique fingerprint.

Cite this