Working Paper: CEPR ID: DP16235
Authors: Johannes Münster; Markus Reisinger
Abstract: In bilateral negotiations between a principal and two agents, we show that the agents' bargaining strengths are crucial for the determination of the bargaining sequence and the efficiency of decisions. In a general framework with externalities between agents, we find that the surplus is highest if the principal negotiates with the stronger agent first, regardless of externalities being positive or negative. The principal chooses the efficient sequence with negative externalities, but often prefers the inefficient sequence with positive externalities. We show that our results extend to a general number of agents and provide conditions for simultaneous negotiations to be optimal.
Keywords: bargaining power; sequential negotiations; externalities; bilateral contracting; endogenous timing
JEL Codes: C72; C78; D62; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bargaining power (C79) | negotiation outcomes (C78) |
| negotiation sequence (C78) | surplus (H62) |
| externalities (D62) | principal's decision-making process (D70) |
| bargaining sequence (C78) | efficiency of agreements (D61) |
| stronger agent first (L85) | surplus (H62) |
| negative externalities (D62) | efficient sequence (C69) |
| positive externalities (D62) | inefficient sequence (C69) |
| anticipated externality effect (D62) | preferred negotiation sequence (C78) |
| outside option effect (C78) | preferred negotiation sequence (C78) |
| partial surplus effect (D11) | preferred negotiation sequence (C78) |