Transparency of Outside Options in Bargaining

Hwang, Ilwoo; Li, Fēi

doi:10.2139/ssrn.2511108

Cited by 4 publications

(3 citation statements)

References 19 publications

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“…Our model is strategically equivalent to a setting in which the agent has at each period an outside option, whose value varies over time and is publicly observed. This relates our model to papers studying how outside options affect equilibrium dynamics in the classic Coasian model (Fuchs and Skrzypacz (2010), Board and Pycia (2014), Hwang and Li (2017)). 2 The key difference, again, is that we study the effect that time-varying outside options have in settings with repeated interaction.…”

Section: Related Literaturementioning

confidence: 98%

Progressive Learning

Acharya¹,

Ortner²

2017

Econometrica

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These Appendixes present the proof of Lemma 0, an extension of our equilibrium characterization allowing for mixed strategies, an analysis of the full commitment case, and details for Example 4 showing that path dependence can arise when shocks are ergodic.KEYWORDS: Principal-agent model, adverse selection, ratchet effect, inefficiency, learning, path dependence. Then there must exist a history (h t b t ) with h t h t that arises on the path of play with positive probability at which the principal offers a transfer T t > c k [ht ] that type c k[ht ] accepts. Note first that since type c k [h t ] accepts offer T t , all types in the support of C[h t ] must also accept it. Indeed, if this were not true, then there would be a highest type c k ∈ C[h t ] that rejects the offer. By the induction hypothesis, the equilibrium payoff that this type obtains at history h t is V (σ μ) k [h t b t ] = 0, since this type would be the highest cost in the support of the principal's beliefs following a rejection. But this cannot be, since type c k can get a payoff of at least T t − c k > 0 by accepting the principal's offer at time t .We now construct an alternative strategy profileσ that is otherwise identical to σ except that at history (h t b t ), the agent is offered a transferT ∈ (c k[ht ] T t ). Specify the principal's beliefs at history (h t b t ) as follows: regardless of the agent's action, the principal's beliefs at the end of the period are the same as her beliefs at the beginning of the period. At all other histories, the principal's actions and beliefs are the same as in the original equilibrium. Note that, given these beliefs, at history h t , all agent types in C[h t ] find it strictly optimal to accept the principal's offerT and take the action. Thus, the principal's payoff at history h t is larger than her payoff under the original equilibrium, which cannot be since the original equilibrium was in Σ K .Q.E.D. PROOF OF PART (II):The proof is by induction of the cardinality of C[h t ]. Consider first a history h t such that |C[h t ]| = 1. Since |C[h t ]| = 1 < 2, the claim is vacuously true.Avidit Acharya: avidit@stanford.edu Juan Ortner: jortner@bu.edu 1 Indeed, if C[h t ] = {c i }, then in any PBE in Σ K the agent takes action a = 1 at time t ≥ t if and only if b t ∈ E i , and the principal pays the agent a transfer equal to c i every time the agent takes the action.

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Section: Related Literaturementioning

confidence: 98%

Progressive Learning

Acharya¹,

Ortner²

2017

Econometrica

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“…Such situations naturally arise when the seller has uncertainty about the buyer's outside option. The uncertainty could be about the timing of arrival of the outside option as in Hwang and Li (2017). They show that the Coase conjecture is restored if the buyer's outside option arrives at a random time.…”

Section: Uncertainty On the Outside Optionmentioning

confidence: 99%

Positive and Negative Selection in Bargaining: An Experiment

2022

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“…This literature is related to the extent that delay may be generated on the equilibrium path here as well: the reasons (concealment of hard evidence leading to the impossibility of mutually-acceptable trade) are markedly different, however. Recently, Hwang and Li (2017) derive delay from the privately observed arrival of a bargaining party's outside option. In contrast, here, concealable hard evidence may arise concerning the value of trade within the buyer-seller relationship, that is, as an inside option.…”

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confidence: 99%

Bargaining With Hard Evidence

Eső

Wallace

2019

The Economic Journal

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This article studies how the presence of concealable hard evidence affects the timing of agreement and the size and distribution of surplus in bargaining. A buyer and a seller receive randomly arriving, verifiable, but concealable evidence about the value of a tradable good. Each party discloses individually favourable information but conceals signals that benefit the other side, giving rise to mutual suspicion; the seller repeatedly posts prices valid for one period. In the leading case of interest with a finite horizon and sufficiently patient players, the equilibrium is characterised by an interval of skimming (a sequence of prices acceptable only to a buyer who has learned that the good’s value is high) concluded by a single settlement period in which agreement is reached for sure. The length of delay until agreement and the corresponding efficiency loss are decreasing in the time horizon and in the abilities of the trading parties to identify the good’s value, but increasing in impatience. An arbitrarily long time horizon leads to immediate agreement if the parties are even slightly impatient and interaction is frequent enough; if the parties are perfectly patient, there is no trade without evidence disclosure.

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Transparency of Outside Options in Bargaining

Cited by 4 publications

References 19 publications

Progressive Learning

Progressive Learning

Positive and Negative Selection in Bargaining: An Experiment

Bargaining With Hard Evidence

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