Working Paper: CEPR ID: DP5495
Authors: Lucy White; Mark Williams
Abstract: The game-theoretic bargaining literature insists on non-cooperative bargaining procedure but allows 'cooperative' implementation of agreements. The effect of this is to allow free-reign of bargaining power with no check upon it. In reality, courts cannot implement agreements costlessly, and parties often prefer to use 'non-cooperative' implementation. We present a bargaining model which incorporates the idea that agreements may be enforced non-cooperatively. We show that this has a substantial impact in limiting the inequality of agreements, and results in a non-montonicity of the discount rate. The general need to maintain incentives for co-operation means it may appear that 'other-regarding' elements enter agents' utility functions. This helps us to understand why experimental subjects might begin negotiations anticipating 'fair' bargains. The model also explains why some parties may have incentives to deliberately write incomplete contracts which cannot be enforced in a court of law.
Keywords: Enforcement; Incomplete Contracts; Noncooperative Bargaining; Strength in Weakness
JEL Codes: C72; C78; C91; D23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Noncooperative implementation (C72) | Limits the inequality of agreements (L42) |
| Noncooperative implementation (C72) | Diminished incentives to cooperate (C72) |
| Noncooperative enforcement (C72) | Nonmonotonic relationship between discount rates and bargaining outcomes (C79) |
| Impatient players (Y70) | Larger shares to prevent opportunistic behavior (D72) |
| Noncooperative enforcement (C72) | More egalitarian outcomes than standard bargaining models predict (C79) |
| Unfair agreements (L14) | Favoring equitable distributions (D30) |