Disagreement and Authority
15 Pages Posted: 18 Oct 2007
Date Written: June 29, 2007
Can two negotiators fail to agree when both the size of the surplus and the rationality of the negotiators are common knowledge? We show that the answer is affirmative. When the negotiators can make irrevocable commitments at a low but positive cost, the unique symmetric equilibrium entails disagreement with high probability. In the unique pair of pure strategy equilibria, one party gets all the surplus. Even though we impose no constraints on side-payments, efficient compromises are unattainable. A strongly asymmetric authority relationship is thus the only viable alternative to costly conﬂict.
Keywords: Authority, Bargaining, Commitment, Disagreement, Transaction Costs
JEL Classification: C72, C78
Suggested Citation: Suggested Citation