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Costly bargaining and renegotiation

Anderlini, L. and Felli, L. (1999) Costly bargaining and renegotiation , Southampton, UK University of Southampton (Discussion Papers in Economics and Econometrics, 9910).

Record type: Monograph (Discussion Paper)

Abstract

We identify the inefficiencies that arise when negotiation between two parties takes place in the presence of transaction costs. First, for some values of these costs it is efficient to reach an agreement but the unique equilibrium outcome is one in which agreement is never reached. Secondly, even when there are equilibria in which an agreement is reached, we find that the model always has an equilibrium in which agreement is never reached, as well as equilibria in which agreement is delayed for an arbitrary length of time.

Finally, the only way in which the parties can reach an agreement in equilibrium is by using inefficient punishments for (some of) the opponent's deviations. We argue that this implies that, when the parties are given the opportunity to renegotiate out of these inefficiencies, the only equilibrium outcome which survives is the one in which agreement is never reached, regardless of the value of the transaction costs.

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More information

Published date: January 1999

Identifiers

Local EPrints ID: 33145
URI: http://eprints.soton.ac.uk/id/eprint/33145
PURE UUID: d67d0636-a2ea-434a-bb91-c821f58edc35

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Date deposited: 20 Dec 2007
Last modified: 17 Jul 2017 15:53

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Contributors

Author: L. Anderlini
Author: L. Felli

University divisions

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