Pirates of the Mediterranean: An empirical investigation of bargaining with transaction costs

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This paper uses ransom prices and time to ransom for over 10,000 captives rescued from the Barbary Corsairs to investigate the empirical relevance of dynamic bargaining models with one-sided asymmetric information. Our dataset includes information that only the buyer knew. In addition, we observe multiple negotiations that were ex ante similar from the uninformed party's (seller's) point of view. Empirical results are consistent with many of the theoretical predictions of dynamic bargaining models. In particular, variation in bargaining costs helps explain the observed differences in negotiation outcomes between different locations.

Last updated on 12/04/2012