Working Paper: CEPR ID: DP2709
Authors: John Fingleton; Michael Raith
Abstract: This Paper analyses strategic bargaining between two agents each of whom negotiates on behalf of a principal. The principals face uncertainty about the bargaining skills of their agents as measured by the agents' abilities to assess the opponent's preferences. Agents then have an incentive to promote their reputation as skilled bargainers through their bargaining behaviour. We compare two different scenarios: open-door bargaining, where the principals observe the entire bargaining process, and closed-door bargaining, where they observe only the final outcome. We show that with open doors, the higher visibility of agents' actions induces low-skill agents to negotiate more aggressively than behind closed doors in order to distort their principals' inferences. Since this ?posturing? increases the probability of delay or disagreement, closed-door bargaining is more efficient.
Keywords: Career concerns; Delegated bargaining; Reputation; Strategic bargaining
JEL Codes: C78; D70; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| open-door bargaining (C78) | aggressive behavior (C92) |
| aggressive behavior (C92) | chances of delay or disagreement (J52) |
| visibility of actions (C90) | principals' beliefs about agents' skills (D83) |
| closed-door bargaining (J52) | less aggressive behavior (C92) |
| less aggressive behavior (C92) | more efficient outcomes (D61) |
| unskilled agents under closed doors (L85) | bargain less aggressively (C79) |
| reputational costs of high offers (D44) | tendency to accept lower offers (D44) |
| closed-door bargaining (J52) | more efficient overall (D61) |