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    Efficiency in negotiation: complexity and costly bargaining

    Lee, J. and Sabourian, Hamid (2005) Efficiency in negotiation: complexity and costly bargaining. Working Paper. Birkbeck, University of London, London, UK.

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    Even with complete information, two-person bargaining can generate a large number of equilibria, involving disagreements and inefficiencies, in (i) negotiation games where disagreement payoffs are endogenously determined (Busch and Wen [6]) and (ii) costly bargaining games where there are transaction / participation costs (Anderlini and Felli [2]). We show that when the players have (at the margin) a preference for less complex strategies only efficient equilibria survive in negotiation games (with sufficiently patient players) while, in sharp contrast, it is only the most infficient outcome involving perpetual disagreement that survives in costly bargaining games.We also find that introducing small transaction costs to negotiation games dramatically alters the selection result: perpetual disagreement becomes the only feasible equilibrium outcome. Thus, in both alternating-offers bargaining games and repeated games with exit options (via bargaining and contracts), complexity considerations establish that the Coase Theorem is valid if and only if there are no transaction / participation costs.


    Item Type: Monograph (Working Paper)
    Additional Information: BWPEF 0505
    Keyword(s) / Subject(s): Bargaining, Repeated Game, Coase Theorem, Transaction Cost, Complexity, Bounded Rationality, Automaton
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Depositing User: Administrator
    Date Deposited: 05 Apr 2019 08:35
    Last Modified: 02 Aug 2023 17:50


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