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Inefficiencies in bargaining - departing from Akerlof and Myerson-Satterthwaite

Compte, O.; Jehiel, P.; (2004) Inefficiencies in bargaining - departing from Akerlof and Myerson-Satterthwaite. (ELSE Working Papers 90). ESRC Centre for Economic Learning and Social Evolution: London, UK. Green open access

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We consider bargaining problems in which parties have access to outside options. The size of the pie is commonly known and each party privately knows the realization of her outside option. Parties are assumed to have a veto right, which allows them to obtain at least their outside option payoff in any event. Besides, agents can receive no subsidy ex post. We show that inefficiencies are inevitable for virtually all distributions of outside options, as long as the size of the surplus generated by the agreement is uncertain and may be arbitrarily small for all realizations of either party’s outside option. Our inefficiency result holds true whatever the degree of correlation between the distributions of outside options, and even if it is known for sure that an agreement is beneficial. The same insights apply to the bargaining between a buyer and a seller privately informed of their valuations and to public good problems among agents privately informed of their willingness to pay.

Type: Working / discussion paper
Title: Inefficiencies in bargaining - departing from Akerlof and Myerson-Satterthwaite
Open access status: An open access version is available from UCL Discovery
Publisher version: http://else.econ.ucl.ac.uk/newweb/papers.php
Language: English
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14584
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