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Compromise is key in infinitely repeated bargaining with an Evergreen Clause

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  • Dutta, Prajit K.

Abstract

This paper considers a new model of repeated bargaining over a flow. In Rubinstein (1982), once an agreement is reached the game ends. Here, the game continues and the agreement can be re-negotiated at cost in any period. It is shown that, with finite memory, there is a unique equilibrium which converges to the Nash Bargaining Solution in the limit. The novel equilibrium feature is the search for compromise; players reject agreements that give them “too much”. Whilst rejection and delays are never observed on the equilibrium path in a stationary environment, they are observed in a non-stationary one. A folk theorem emerges with infinite memory.

Suggested Citation

  • Dutta, Prajit K., 2021. "Compromise is key in infinitely repeated bargaining with an Evergreen Clause," Journal of Economic Theory, Elsevier, vol. 193(C).
    • Handle: RePEc:eee:jetheo:v:193:y:2021:i:c:s0022053120301630
    DOI: 10.1016/j.jet.2020.105170
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    References listed on IDEAS

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    More about this item

    Keywords

    Repeated bargaining; Evergreen Clause; Compromise;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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