The Efficiency of Negotiations with Uncertainty and Multi-Dimensional Deals

38 Pages Posted: 30 Apr 2018 Last revised: 18 Oct 2022

See all articles by Matthew O. Jackson

Matthew O. Jackson

Stanford University - Department of Economics; Santa Fe Institute

Hugo Sonnenschein

Stanford University - Department of Economics

Yiqing Xing

Johns Hopkins University - Carey Business School

Christis Tombazos

Monash University - Department of Economics

Omar Al-Ubaydli

George Mason University - Department of Economics; Derasat; George Mason University - Mercatus Center; Economic Research Forum (ERF)

Date Written: April 1, 2018

Abstract

We study negotiations over multiple goods or dimensions that can be bundled together. We concentrate on settings in which the maximum potential surplus that can be reached is commonly known, but the bundle of goods or decisions that realizes that surplus is unknown and involves two-sided incomplete information. We use theory and controlled laboratory experiments to show that in such settings efficient trade is possible despite substantial asymmetric information. Moreover, we show that achieving efficient outcomes depends on having sufficiently rich negotiation protocols: if agents can offer to trade bundles of goods for overall bundle prices, then all equilibria are efficient. By contrast, if agents negotiate over every good separately, each with its own price, then all equilibria are inefficient.

Keywords: Negotiation, Bargaining, Exchange, Trade, Multiple Items, Linking, Efficiency, Experiment

JEL Classification: A13, C72, C78, D47, D82, C92

Suggested Citation

Jackson, Matthew O. and Sonnenschein, Hugo and Xing, Yiqing and Tombazos, Christis G. and Al-Ubaydli, Omar and Al-Ubaydli, Omar, The Efficiency of Negotiations with Uncertainty and Multi-Dimensional Deals (April 1, 2018). Johns Hopkins Carey Business School Research Paper No. 21-14, Available at SSRN: https://ssrn.com/abstract=3153853 or http://dx.doi.org/10.2139/ssrn.3153853

Matthew O. Jackson (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
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HOME PAGE: http://www.stanford.edu/~jacksonm

Santa Fe Institute

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Hugo Sonnenschein

Stanford University - Department of Economics ( email )

Landau Economics Building
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Stanford, CA 94305-6072
United States

Yiqing Xing

Johns Hopkins University - Carey Business School ( email )

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HOME PAGE: http://yiqingxing.com

Christis G. Tombazos

Monash University - Department of Economics ( email )

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Australia

Omar Al-Ubaydli

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-4538 (Phone)
703-993-1133 (Fax)

Derasat ( email )

Bahrain

George Mason University - Mercatus Center ( email )

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Arlington, VA 22201
United States

Economic Research Forum (ERF) ( email )

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(P.O. Box: 12311)
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Egypt

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