Durability, Deadline, and Election Effects in Bargaining

58 Pages Posted: 1 Jun 2016 Last revised: 22 May 2023

See all articles by Alp Simsek

Alp Simsek

Yale School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Muhamet Yildiz

Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: May 2016

Abstract

We propose a tractable model of bargaining with optimism. The distinguishing feature of our model is that the bargaining power is durable and changes only due to important events such as elections. Players know their current bargaining powers, but they can be optimistic that events will shift the bargaining power in their favor. We define congruence (in political negotiations, political capital) as the extent to which a party's current bargaining power translates into its expected payoff from bargaining. We show that durability increases congruence and plays a central role in understanding bargaining delays, as well as the finer bargaining details in political negotiations. Optimistic players delay the agreement if durability is expected to increase in the future. The applications of this durability effect include deadline and election effects, by which upcoming deadlines or elections lead to ex-ante gridlock. In political negotiations, political capital is highest in the immediate aftermath of the election, but it decreases as the next election approaches.

Suggested Citation

Simsek, Alp and Yildiz, Muhamet, Durability, Deadline, and Election Effects in Bargaining (May 2016). NBER Working Paper No. w22284, Available at SSRN: https://ssrn.com/abstract=2786442

Alp Simsek (Contact Author)

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HOME PAGE: http://https://economics.mit.edu/faculty/asimsek

Centre for Economic Policy Research (CEPR) ( email )

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Muhamet Yildiz

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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