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Gradualism in Bargaining and Contribution Games
Olivier Compte Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Paris School of Economics Philippe Jehiel University College London - Department of Economics; Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Centre for Economic Policy Research (CEPR) Review of Economic Studies, Vol. 71, No. 4, pp. 975-1000, December 2004 Abstract: This paper identifies a source of gradualism in bargaining and contribution games. In the bargaining games we examine, each party can opt out at any time, and the outside option outcome is assumed to depend on the offers made in the negotiation phase. Specifically, we assume that (1) making a concession in the negotiation phase increases the other party's outside option pay-off and (2) the outside option outcome induces an efficiency loss as compared with a negotiated agreement. The main finding is that the mere presence of such history-dependent outside options forces equilibrium concessions in the negotiation phase to be gradual, and the degree of gradualism is characterized. The model also applies to contribution games in which the outside option may be interpreted as the option to implement a partial project using the total contributions made so far. Accepted Paper Series Date posted: July 09, 2007 ; Last revised: July 09, 2007Suggested CitationContact Information
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