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Gradual Bargaining in Decentralized Asset Markets

Author

Listed:
  • Tai-Wei Hu

    (University of Bristol)

  • Guillaume Rocheteau

    (University of California, Irvine)

  • Lucie Lebeau

    (UC Irvine)

  • Younghwan In

    (KAIST)

Abstract

We introduce a new approach to bargaining into a model of decentralized asset market with unrestricted portfolios. Gradual bargaining (O’Neill et al., 2004) captures the idea that portfolios of assets are sold sequentially, one unit of asset at a time. In contrast to Nash or Kalai solutions, it is both monotone and ordinal. Moreover, gradual bargaining reduces asset misallocation in decentralized markets and can implement first best with or without endogenous participation. We generalize the solution to allow for time-varying bargaining powers and time-intensive technologies to negotiate assets thereby capturing the notion of asset negotiability, i.e., some assets can take longer than others to negotiate due to their complexity. The model can explain the rate-of-return-dominance puzzle.

Suggested Citation

  • Tai-Wei Hu & Guillaume Rocheteau & Lucie Lebeau & Younghwan In, 2018. "Gradual Bargaining in Decentralized Asset Markets," 2018 Meeting Papers 606, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:606
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    References listed on IDEAS

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    Cited by:

    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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