Sunk costs and fairness in incomplete information bargaining

Ellingsen, Tore; Johannesson, Magnus

doi:10.1016/j.geb.2004.02.005

Cited by 35 publications

(28 citation statements)

References 43 publications

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“…They therefore stick to their announced bargaining behavior such that communication is no longer cheap talk. Both papers provide experimental evidence which -especially in Ellingsen and Johannesson (2004) -can also be interpreted in accordance with the present paper. First, the importance of communication as a signalling device might hint at the relevance of incomplete information on the investor's preferences.…”

Section: Related Literaturesupporting

confidence: 90%

“…The first two papers focus on the role of communication prior to the bargaining. Ellingsen and Johannesson (2002a) argue that social preferences and communication can provide a focal point in bargaining games with multiple equilibria. If individuals then coordinate on an equilibrium with efficient investment incentives, the hold-up problem disappears.…”

Section: Related Literaturementioning

confidence: 99%

“…If individuals then coordinate on an equilibrium with efficient investment incentives, the hold-up problem disappears. In Ellingsen and Johannesson (2004) individuals care for both fairness and consistency. They therefore stick to their announced bargaining behavior such that communication is no longer cheap talk.…”

Section: Related Literaturementioning

confidence: 99%

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Bargaining under incomplete information, fairness, and the hold-up problem

Siemens

2009

Journal of Economic Behavior & Organization

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In the hold-up problem incomplete contracts cause the proceeds of relation-specific investments to be allocated by ex-post bargaining. The present paper investigates the efficiency of incomplete contracts if individuals have heterogeneous preferences implying heterogeneous bargaining behavior and -equally important -preferences are private information. As the sunk investment costs can thus potentially signal preferences, they can influence beliefs and consequently bargaining outcomes. The necessities of signalling are shown to generate very strong investment incentives. These incentives are based on the desire not to reveal information that is unfavorable in the ensuing bargaining.After finding all perfect Bayesian equilibria in pure strategies, the paper derives the necessary and sufficient conditions under which it is optimal to invest and trade efficiently. Classification: C70, D23, D63, D82, J33, K12, L22 JEL

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Section: Related Literaturesupporting

confidence: 90%

Section: Related Literaturementioning

confidence: 99%

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Bargaining under incomplete information, fairness, and the hold-up problem

Siemens

2009

Journal of Economic Behavior & Organization

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“…And even if a prior investment stage is considered, the analysis is typically focused on proposers' behavior. For example, recently Ellingsen and Johannesson (2005) conducted an experiment in which the proposer first could generate potential gains from later trade through a nonrecoverable investment. The authors find that high-(sunk-)cost proposers tend to make more aggressive offers, which could be explained by an increase in the proposers' perceived deservingness.…”

Section: Introductionmentioning

confidence: 99%

Participation costs for responders can reduce rejection rates in ultimatum bargaining

2009

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Department of Economics, University of Cologne, GermanyAbstract. This paper reports data from an ultimatum mini-game in which responders first had to choose whether or not to participate. Participation was costly, but the participation cost was smaller than the minimum payoff that a responder could guarantee himself in the ultimatum game. Compared to a standard treatment, we find that the rejection rate of unfavorable offers is significantly reduced when participation is costly. A possible explanation based on cognitive dissonance is offered.

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“…when investment costs are high). Ellingsen and Johannesson (2005) consider a setting in which the investor makes an ultimatum o¤er about how to divide the (observable) surplus created by her investment. In one treatment the investor is privately informed about the costs of investment, in two other treatments these costs are publicly observed (and are either low or high).…”

Section: Introductionmentioning

confidence: 99%

Price-setting power vs. private information: An experimental evaluation of their impact on holdup

Sloof

2008

European Economic Review

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Price-setting power vs. private information: An experimental evaluation of their impact on holdup Sloof, R. General rightsIt is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), other than for strictly personal, individual use, unless the work is under an open content license (like Creative Commons). Disclaimer/Complaints regulationsIf you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library: http://uba.uva.nl/en/contact, or a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible. Download date: 11 May 2018Price-setting power versus private information: An experimental evaluation of their impact on holdup. Randolph Sloof y May 10, 2006Abstract This paper investigates the extent of the holdup problem in a buyerseller relationship in which the seller has private information about his alternative opportunities. Theory predicts that, compared to a situation in which outside options are publicly observed, the seller obtains an informational rent whereas the buyer bears an informational loss. As a result the seller is predicted to invest more while the buyer is expected to invest less. In contrast to these predictions, private information has no impact on the investment levels observed in the experiment. But, actual investments do increase with the price-setting power of the investor. These experimental …ndings are roughly consistent with a model in which agents are inequality-averse. Overall the results question some recent theoretical suggestions that private information rents might substitute for price-setting power in mitigating holdup.

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Sunk costs and fairness in incomplete information bargaining

Cited by 35 publications

References 43 publications

Bargaining under incomplete information, fairness, and the hold-up problem

Bargaining under incomplete information, fairness, and the hold-up problem

Participation costs for responders can reduce rejection rates in ultimatum bargaining

Price-setting power vs. private information: An experimental evaluation of their impact on holdup

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