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A Theory of Efficient Negotiations

49 Pages Posted: 21 Mar 2015 Last revised: 15 Mar 2016

Matthew O. Jackson

Stanford University - Department of Economics; Santa Fe Institute; Canadian Institute for Advanced Research (CIFAR)

Hugo Sonnenschein

Stanford University - Department of Economics

Yiqing Xing

Johns Hopkins University - Carey Business School

Date Written: March 19, 2015

Abstract

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

Jackson, Matthew O. and Sonnenschein, Hugo and Xing, Yiqing, A Theory of Efficient Negotiations (March 19, 2015). Available at SSRN: https://ssrn.com/abstract=2580894 or http://dx.doi.org/10.2139/ssrn.2580894

Matthew Jackson (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
1-650-723-3544 (Phone)

HOME PAGE: http://www.stanford.edu/~jacksonm

Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Canadian Institute for Advanced Research (CIFAR) ( email )

180 Dundas Street West, Suite 1400
Toronto, Ontario
Canada

Hugo Sonnenschein

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Yiqing Xing

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://yiqingxing.com

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