Adverse Selection, Impatience, and Immediate or Delayed Bargaining Agreements
13 Pages Posted: 22 Nov 2002
Date Written: October 2002
Abstract
A standard result in bargaining with symmetric information is that agents exploit all gains from trade, and reach efficient agreements immediately. Models of delayed and inefficient agreements are typically based on asymmetric information regarding bargainer types. However, such models often require permanent or temporary departures from rationality by at least one player.
We develop a simple asymmetric information model in which a rational bargainer may or may not make a tough proposal in order to signal his type. We demonstrate that when the adverse selection effect dominates, delayed agreements are likely, whereas when impatience dominates, immediate agreements are likely.
Our model provides a useful structure for an experimental bargaining game. It enables us to predict equilibrium offers, and whether agreements will be immediate or delayed. We discuss the design and predictions of this experiment.
Keywords: bargaining, adverse selection, impatience, delays, signalling of bargaining strength
JEL Classification: C78, D82, C90
Suggested Citation: Suggested Citation