Bargaining and efficiency in networks

Dilip Abreu, Mihai Manea

    Research output: Contribution to journalArticle

    Abstract

    We study an infinite horizon game in which pairs of players connected in a network are randomly matched to bargain over a unit surplus. Players who reach agreement are removed from the network without replacement. The global logic of efficient matchings and the local nature of bargaining, in combination with the irreversible exit of player pairs following agreements, create severe hurdles to the attainment of efficiency in equilibrium. For many networks all Markov perfect equilibria of the bargaining game are inefficient, even as players become patient. We investigate how incentives need to be structured in order to achieve efficiency via subgame perfect, but non-Markovian, equilibria. The analysis extends to an alternative model in which individual players are selected according to some probability distribution, and a chosen player can select a neighbor with whom to bargain.

    Original languageEnglish (US)
    Pages (from-to)43-70
    Number of pages28
    JournalJournal of Economic Theory
    Volume147
    Issue number1
    DOIs
    StatePublished - Jan 2012

    Fingerprint

    Markov perfect equilibrium
    Incentives
    Bargaining games
    Probability distribution
    Exit
    Infinite horizon
    Surplus
    Replacement
    Alternative models
    Logic

    Keywords

    • Bargaining
    • Decentralized markets
    • Efficiency
    • Networks
    • Random matching
    • Stochastic games

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Bargaining and efficiency in networks. / Abreu, Dilip; Manea, Mihai.

    In: Journal of Economic Theory, Vol. 147, No. 1, 01.2012, p. 43-70.

    Research output: Contribution to journalArticle

    Abreu, Dilip ; Manea, Mihai. / Bargaining and efficiency in networks. In: Journal of Economic Theory. 2012 ; Vol. 147, No. 1. pp. 43-70.
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