Bargaining with Deadlines and Private Information

Bargaining with Deadlines and Private Information

By
William Fuchs, Andrzej Skrzypacz
AEJ: Microeconomics.
2013, Vol. 5, Issue 4, Pages 219-243

We study dynamic bargaining with private information and a deadline. As commitment power disappears, there is a clear “deadline effect.” That is, trade takes place smoothly before the deadline and with an atom right at the deadline. Prices, timing of trade, and the deadline effect respond to the consequences of not reaching an agreement. Bleaker disagreement options lead to more trade and proportionally more of the agreements taking place on the verge of the deadline. Time to deadline can affect the overall efficiency of the equilibrium nonmonotonically. For intermediate deadlines, efficiency is improved if agents face bleaker prospects after deadline.