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Bargining and Investment

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  • Francesca Flamini

Abstract

The focus of this paper is on repeated bargaining games in which two parties can decide how much to invest and how to share the remaining surplus for their own consumption. The game is dynamic since the current level of investment affects future surpluses. We characterise an MPE without delays in general terms and show the parametrical effects for the specific case in which parties share the surplus equally. We show that the relatively more patient player invests more than his opponent, for a given capital stock. Moreover, if the probability of becoming a proposer decreases for the more patient player, then such a player reduces his investment, while the relatively impatient player increases his investment.

Suggested Citation

  • Francesca Flamini, "undated". "Bargining and Investment," Working Papers 2005_6, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2005_6
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    File URL: http://www.gla.ac.uk/media/media_22197_en.pdf
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    References listed on IDEAS

    as
    1. Gul, Faruk, 2001. "Unobservable Investment and the Hold-Up Problem," Econometrica, Econometric Society, vol. 69(2), pages 343-376, March.
    2. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, October.
    3. Abhinay Muthoo, 1998. "Sunk Costs and the Inefficiency of Relationship‐Specific Investment," Economica, London School of Economics and Political Science, vol. 65(257), pages 97-106, February.
    4. Muthoo Abhinay, 1995. "Bargaining in a Long-Term Relationship with Endogenous Termination," Journal of Economic Theory, Elsevier, vol. 66(2), pages 590-598, August.
    5. David Levhari & Leonard J. Mirman, 1980. "The Great Fish War: An Example Using a Dynamic Cournot-Nash Solution," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 322-334, Spring.
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    Cited by:

    1. Sorger, Gerhard, 2006. "Recursive Nash bargaining over a productive asset," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2637-2659, December.

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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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