SFB 303 Discussion Paper No. A - 315

Author: Ma, Ching-To Albert, and Michael Manove
Title: Bargaining with Deadliness and Random Delays
Abstract: Bargaining often occurs under the pressure of a deadline. The deadline may be externally imposed, or one of the parties to the negotiation may have adopted the deadline and made a credible commitment to it. Collective bargaining, contract negotiations and international negotiations are often subject to such deadlines. Anecdotal evidence suggests that bargaining sessions subject to deadlines often begin with cheap talk and rejected proposals; agreements, if they are reached at all, tend to be concluded near the deadline. Furthermore, experimental studies provide strong evidence for the existence of such deadline effects. We attempt to capture and explain these phenomena in a strategic bargaining model. This model incorporates a bargaining deadline along with exogenous random delays in the transmission and consideration of offers. We solve the model in which random delays are uniformly distributed over a unit interval. Our model has a unique symmetric Markov-perfect equilibrium in which early offers are made and rejected, and agreements are reached late in the game. In equilibrium players miss the deadline with positive probability. If equilibrium play results in an agreement, the division of the surplus is unique and close to an even split.
Creation-Date: August 1990
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