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Bargaining with habit formation

Author

Listed:
  • Bahar Leventoğlu

    (Duke University)

Abstract

Habit formation is a well-documented behavioral regularity in psychology and economics; however, its implications on bargaining outcomes have so far been overlooked. I study an otherwise standard Rubinstein bargaining model with habit-forming players. In equilibrium, a player can strategically exploit his opponent’s habit- forming behavior via unilateral transfers off the equilibrium path to generate endogenous costs and gain bargaining leverage at no cost to himself on the equilibrium path. Uncertainty about habit formation may lead to delay in agreement.

Suggested Citation

  • Bahar Leventoğlu, 2017. "Bargaining with habit formation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(3), pages 477-508, October.
    • Handle: RePEc:spr:joecth:v:64:y:2017:i:3:d:10.1007_s00199-016-0994-z
    DOI: 10.1007/s00199-016-0994-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Bargaining; Habit formation; Behavioral economics; Uncertainty;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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