Econometrica: May, 2016, Volume 84, Issue 3

Reputational Bargaining and Deadlines

https://doi.org/10.3982/ECTA12628
p. 1131-1179

Jack Fanning

I highlight how reputational concerns provide a natural explanation for “deadline effects,” the high frequency of deals prior to a deadline in bargaining. Rational agents imitate the demands of obstinate behavioral types and engage in brinkmanship in the face of uncertainty about the deadline's arrival. I also identify how surplus is divided when the prior probability of behavioral types is vanishingly small. If behavioral types are committed to fixed demands, outcomes converge to the Nash bargaining solution regardless of agents' respective impatience. If behavioral types can adopt more complex demand strategies, outcomes converge to the solution of an alternating offers game without behavioral types for the deadline environment.

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