Bargaining with history-dependent preferences |
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Authors: | Duozhe Li |
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Institution: | Department of Economics, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong |
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Abstract: | Two impatient players bargain over a pie of size one according to the infinite alternating-offers procedure. Players’ payoffs depend not only on the outcome but also on the process of the bargaining. Specifically, they prefer impasse to any agreement that gives them lower discounted utility than would have been derived from accepting earlier offers. We characterize the essentially unique subgame perfect equilibrium path, which consists of gradual concessions. The more patient players are, the longer it takes them to reach an agreement. When players become infinitely patient, the efficiency loss is substantial, yet the equilibrium division converges to the Nash solution. |
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Keywords: | C78 |
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