Wednesday, May 30, 2012
Bray Theory Workshop
Reputational Bargaining and Asymmetric Information
David Pearce, Professor of Economics, New York University
A two-person infinite-horizon bargaining model where one of the players may have either of two discount factors has a multiplicity of perfect Bayesian equilibria. Introducing the slightest possibility that either player may be one of a rich variety of stationary behavioral types singles out a particular solution and appears to support some axiomatic treatments in the early literature. Perturbing the model with a slightly broader class of behavioral types that allows the informed player to delay making his initial offer again achieves powerful equilibrium refinement. But there is substantial delay to agreement, and predictions depend continuously on the ex ante probabilities of the patient and impatient types of the informed player, counter to what the literature suggests.