Sequential Bargaining Under Asymmetric Information / Sanford J. Grossman, Motty Perry.

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Grossman, Sanford J

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Material type: Text

TextSeries: Technical Working Paper Series (National Bureau of Economic Research) ; no. t0056.Publication details: Cambridge, Mass. National Bureau of Economic Research 1986.Description: 1 online resource: illustrations (black and white)Online resources:

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Abstract: We analyze an infinite stage, alternating offer bargaining game in which the buyer knows the gains from trade but the seller does not. Under weak assumptions the game has a unique candidate Perfect Sequential Equilibrium, and it can be solved by backward induction. Equilibrium involves the seller making an offer which is accepted by buyers with high gains from trade, while buyers with medium gains reject and make a counteroffer which the seller accepts. Buyers with low gains make an unacceptable offer, and then the whole process repeats itself, Numerical simulations demonstrate the effects of uncertainty on the length of bargaining.

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Previous	nber t0053 Microeconomic Approaches to the Theory of International Comparisons /	nber t0054 Full Versus Limited Information Estimation of a Rational Expectations Model: Some Numerical Comparisons /	nber t0055 A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix /	nber t0056 Sequential Bargaining Under Asymmetric Information /	nber t0057 Testing for Individual Effects in Dynamic Models Using Panel Data /	nber t0058 Bias in Longitudinal Estimation of Wage Gaps /	nber t0059 Maximum Likelihood Estimation of Generalized Ito Processes with Discretely Sampled Data /	Next

May 1986.

We analyze an infinite stage, alternating offer bargaining game in which the buyer knows the gains from trade but the seller does not. Under weak assumptions the game has a unique candidate Perfect Sequential Equilibrium, and it can be solved by backward induction. Equilibrium involves the seller making an offer which is accepted by buyers with high gains from trade, while buyers with medium gains reject and make a counteroffer which the seller accepts. Buyers with low gains make an unacceptable offer, and then the whole process repeats itself, Numerical simulations demonstrate the effects of uncertainty on the length of bargaining.