In a two-player alternating-offer bargaining model, if one player can destroy the surplus to be allocated, then the value to bargain for is endogenous, except at the beginning. Even with complete information, the model has perfect equilibria with delayed agreement and/or surplus destruction. The model therefore explains inefficiency and destruction that may appear irrational. We characterize the set of equilibrium payoffs and its limiting behaviour as the time between offers vanishes. Real time delay remains possible even in the limit. We also consider the case of surplus destruction that is exogenously limited by the time between offers. JEL Classification: C73, C78.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics