Abstract:

We propose a finite-horizon continuous-time framework for coalitional bargaining that has the following features: (i) Expected payoffs in Markov-perfect equilibrium (MPE) are unique, generating sharp predictions and facilitating comparative statics investigations; (ii) MPE are the only subgame-perfect Nash equilibria (SPNE) of the model that can be approximated by SPNE of nearby discrete-time bargaining models satisfying a genericity condition, providing justification for focusing on MPE in our model; (iii) The model is relatively tractable analytically. We investigate MPE payoffs as the time horizon goes to infinity. In convex games, we connect these limit payoffs to the core of the characteristic function underlying the bargaining game.

Notes:

revision requested by AEJ: Microaeconomics