Bargaining and reputation

Dilip Abreu, Faruk Gul

    Research output: Contribution to journalArticle

    Abstract

    The paper develops a reputation based theory of bargaining. The idea is to investigate and highlight the influence of bargaining "postures" on bargaining outcomes. A complete information bargaining model à la Rubinstein is amended to accommodate "irrational types" who are obstinate, and indeed for tractability assumed to be completely inflexible in their offers and demands. A strong "independence of procedures" result is derived: after initial postures have been adopted, the bargaining outcome is independent of the fine details of the bargaining protocol so long as both players have the opportunity to make offers frequently. The latter analysis yields a unique continuous-time limit with a war of attrition structure. In the continuous-time game, equilibrium is unique, and entails delay, consequently inefficiency. The equilibrium outcome reflects the combined influence of the rates of time preference of the players and the ex ante probabilities of different irrational types. As the probability of irrationality goes to zero, delay and inefficiency disappear; furthermore, if there is a rich set of types for both agents, the limit equilibrium payoffs are inversely proportional to their rates of time preference.

    Original languageEnglish (US)
    Pages (from-to)85-117
    Number of pages33
    JournalEconometrica
    Volume68
    Issue number1
    StatePublished - 2000

    Fingerprint

    Time preference
    Continuous time
    Inefficiency
    Irrationality
    Complete information
    War of attrition
    Bargaining model

    Keywords

    • Delay
    • Incomplete information
    • Independence from procedures
    • Obstinate types
    • War of attrition

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Abreu, D., & Gul, F. (2000). Bargaining and reputation. Econometrica, 68(1), 85-117.

    Bargaining and reputation. / Abreu, Dilip; Gul, Faruk.

    In: Econometrica, Vol. 68, No. 1, 2000, p. 85-117.

    Research output: Contribution to journalArticle

    Abreu, D & Gul, F 2000, 'Bargaining and reputation', Econometrica, vol. 68, no. 1, pp. 85-117.
    Abreu D, Gul F. Bargaining and reputation. Econometrica. 2000;68(1):85-117.
    Abreu, Dilip ; Gul, Faruk. / Bargaining and reputation. In: Econometrica. 2000 ; Vol. 68, No. 1. pp. 85-117.
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