Inefficient Pre-Bargaining Search
23 Pages Posted: 9 Jan 2011
Date Written: December 20, 2010
We identify conditions under which a bargainer makes inefficiently large (small) investments in search for information about the opponent’s reservation price. The analysis starts with the observation that a player will invest too much (too little) if the opponent’s expected payoff is decreasing (increasing) in the probability that the player gets information. We develop comparative static results about over- and under-investment as a function of the efficiency and distributional properties of mechanisms, their dependence on search outcomes, and the nature of the trading problem. The results do not depend on any specific bargaining mechanism and are illustrated in several examples.
Keywords: Bargaining, Information Acquisition
JEL Classification: C78, D02, D83
Suggested Citation: Suggested Citation