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A new mechanism for resolving bargaining impasses between risk averse parties

Author

Listed:
  • Emily Tanimura

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Sylvie Thoron

    (LIPHA - Laboratoire Interdisciplinaire d'Etude du Politique Hannah Arendt Paris-Est - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12)

Abstract

In a sequential bargaining game framework with complete information and no discounting, this paper proposes a mechanism in the spirit of a final offers arbitration (FOA). At each step, two parties may stop negotiating in order to implement a lottery between the two current proposals or go on making new proposals. A crucial difference with the FOA is that the list of past proposals is recorded and used by the mechanism. Once a lottery has been implemented, the parties can reject the offer which has been drawn and go back to a lottery between proposals made in the past. At the dominant subgame perfect equilibrium the two parties make gradual concessions leading to a final agreement which coincides with the Raiffa solution. The main incentive to reach an agreement comes from risk-aversion. The necessity to make step by step concessions generates evolving disagreement points and gradualism.

Suggested Citation

  • Emily Tanimura & Sylvie Thoron, 2016. "A new mechanism for resolving bargaining impasses between risk averse parties," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01394208, HAL.
    • Handle: RePEc:hal:cesptp:hal-01394208
    as

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