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Gradual Bargaining in Decentralized Asset Markets

Author

Listed:
  • Guillaume Rocheteau

    (Department of Economics, University of California-Irvine)

  • Lucie Lebeau

    (Department of Economics, University of California-Irvine)

  • Tai-Wei Hu

    (University of Bristol)

  • Younghwan In

    (KAIST College of Business)

Abstract

We introduce a new approach to bargaining, with strategic and axiomatic foundations, into models of decentralized asset markets. Bargaining with an agenda assumes that asset portfolios are partitioned into bundles sold sequentially, and encompasses both the Nash and Kalai solutions as special cases. Gradual negotiations are optimal for portfolio holders and, in general equilibrium, they raise social welfare by reducing asset misallocation. In the presence of multiple assets, our theory generates a pecking order, and di§erences in returns and turnover. We apply our model to the study of open-market operations and the determination of the exchange rate between (crypto-)currencies.

Suggested Citation

  • Guillaume Rocheteau & Lucie Lebeau & Tai-Wei Hu & Younghwan In, 2018. "Gradual Bargaining in Decentralized Asset Markets," Working Papers 181904, University of California-Irvine, Department of Economics.
    • Handle: RePEc:irv:wpaper:181904
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    File URL: https://www.economics.uci.edu/research/wp/1819/18-19-04.pdf
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    1. Guillaume Rocheteau & Tai-Wei Hu & Lucie Lebeau & Younghwan In, 2021. "Gradual Bargaining in Decentralized Asset Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 72-109, October.

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    More about this item

    Keywords

    Decentralized asset markets; Bargaining with an agenda; Nash program; Rate-of-return dominance;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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