A Theory of Efficient Negotiations
49 Pages Posted: 21 Mar 2015 Last revised: 15 Mar 2016
Date Written: March 19, 2015
Negotiation involves determining not only an agreement's price, but also its content, which typically has many aspects. We model such negotiations and provide conditions under which negotiation leads to efficient outcomes, even in the face of substantial asymmetric information regarding the value of each aspect. With sufficient information about the overall potential surplus, if the set of offers that agents can make when negotiating is sufficiently rich, then negotiation leads the agents to efficient agreements in all equilibria. Furthermore, no "planner" or "mechanism designer" who knows the statistical structure of information is required: the same negotiation game works regardless of the setting. The theory and examples explore the anatomy of negotiation and may shed light on why many situations with significant asymmetric information exhibit little inefficiency.
Keywords: Bargaining, Exchange, Trade, Multiple Objects, Linking, Contract Theory, Mechanism Design, Implementation, Bayesian Equilibrium, Efficiency, Sequential Equilibrium, Trembling
JEL Classification: A13, C72, C78, D47, D82
Suggested Citation: Suggested Citation