Bargaining in a non-stationary environment

Melvyn G. Coles, Abhinay Muthoo

Research output: Contribution to journalArticlepeer-review

Abstract

We study an alternating offers bargaining model in which the set of possible utility pairs evolves through time in a non-stationary, but smooth manner. In general, there exists a multiplicity of subgame perfect equilibria. However, we show that in the limit as the time interval between two consecutive offers becomes arbitrarily small, there exists a unique subgame perfect equilibrium. Furthermore, we derive a powerful characterization of the unique (limiting) subgame perfect equilibrium payoffs. We then explore the circumstances under which Nash's bargaining solution implements this bargaining equilibrium. Finally, we extend our results to the case when the players have time-varying inside options.

Original languageEnglish (US)
Pages (from-to)70-89
Number of pages20
JournalJournal of Economic Theory
Volume109
Issue number1
DOIs
StatePublished - Mar 1 2003

Keywords

  • Alternating offers
  • Non-stationary environment
  • Subgame perfect equilibrium

ASJC Scopus subject areas

  • Economics and Econometrics

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