The optimal degree of commitment in a negotiation with a deadline

Summary. This note explores the consequences of a player's freedom of choice over his degree of commitment for the bargaining outcome. In particular, we modify the nonstationary structure of Fershtman and Seidmann (1993)'s bargaining by allowing one player to possess imperfect commitments where the degree of commitment is chosen prior to the negotiation stage. We show that a player optimally chooses an intermediate degree of irrevocability provided the costs of increasing the degree of commitment are small enough. In this case, not only an immediate agreement is reached but also the commitment is effective.Received: 18 July 2002, Revised: 20 March 2003, JEL Classification Numbers: C78.Part of this work was written while I was visiting the IAE-CSIC and the University of Essex, whose hospitalities are gratefully acknowledged. This paper has benefited from comments of seminar participants at the University of Essex, 56th European Econometric Society Meeting, 16th Annual Congress of the European Economic Association in Lausanne and the XXVI Symposium of Economic Analysis in Barcelona. I thank Vicent Calabuig and Gonzalo Olcina for very helpful comments. I am especially indebted t o Clara Ponsatí and an anonymous referee for some very detailed comments which lead to substantial improvement of the paper. I also gratefully acknowledge the financial support from Generalitat Valenciana under a postdoctoral grant.