Econometrica: Mar 2001, Volume 69, Issue 2

Costly Bargaining and Renegotiation
p. 377-411

Luca Anderlini, Leonardo Felli

We identify the inefficiencies that arise when negotiation between two parties takes place in the presence of transaction costs. First, for some values of these costs it is efficient to reach an agreement but the unique equilibrium outcome is one in which agreement is never reached. Secondly, even when there are equilibria in which an agreement is reached, we find that the model always has an equilibrium in which agreement is never reached, as well as equilibria in which agreement is delayed for an arbitrary length of time.

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