Durability, Deadline, and Election Effects in Bargaining / Alp Simsek, Muhamet Yildiz.

Format:

Book

Author/Creator:

Simsek, Alp.

Contributor:

National Bureau of Economic Research.

Yildiz, Muhamet.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22284.

NBER working paper series no. w22284

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

We propose a tractable model of bargaining with optimism. The distinguishing feature of our model is that the bargaining power is durable and changes only due to important events such as elections. Players know their current bargaining powers, but they can be optimistic that events will shift the bargaining power in their favor. We define congruence (in political negotiations, political capital) as the extent to which a party's current bargaining power translates into its expected payoff from bargaining. We show that durability increases congruence and plays a central role in understanding bargaining delays, as well as the finer bargaining details in political negotiations. Optimistic players delay the agreement if durability is expected to increase in the future. The applications of this durability effect include deadline and election effects, by which upcoming deadlines or elections lead to ex-ante gridlock. In political negotiations, political capital is highest in the immediate aftermath of the election, but it decreases as the next election approaches.

Notes:

Print version record

May 2016.