Causes of Bargaining Failure

Project managerKaren Evelyn Hauge
ClientNFR via BI
Client project no.NFR: 250206 BI:86138 Toppforsk
ParticipantsKaren Evelyn Hauge
Period2016 - 2020

Project description

The workhorse model of bargaining in economics and political science assume rational agents and complete and perfect information. This model is unable to account for delay or breakdown in bargaining. An emerging theoretical literature explore behavioral causes of bargaining failure, such as biased beliefs, commitments, and lack of common knowledge rationality. We propose to add to this literature, by formulating models and by performing systematic evaluation of competing hypotheses in controlled experiments.

The first part of the project address bilateral bargaining. We focus on three causes of bargaining failure: biased beliefs; commitment; and lack of common knowledge rationality, and propose to address the following core hypotheses:
* Are self-serving biases a major source of delay in alternating offer bargaining?
* Do access to irreversible and cost free commitments produce breakdown in static bargaining situations?
* Does rapidly decaying commitments produce efficient outcomes in dynamic bargaining situations?
* Can strategic uncertainty explain observed delays in complete information alternating offer bargaining?

The second part of the project vary the broader institutions in which bargaining takes place. Rational bargainers in complete information environments will in general not produce delay or breakdown. However, actual bargaining is conducted in a variety of broader institutional settings - such as markets with matching frictions and various forms of third party intervention. This may give rise to informational challenges that affects efficiency in bargaining. We focus on two aspects of the institutional environment: Institutionalized third party intervention and bargaining embedded in frictional markets. We propose to address the following core hypotheses.

* How does third party intervention impact on delay and efficiency?
* Do chains of bargaining complicate expectations and generate delay?
* Can matching frictions in markets produce delay?


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