Inefficient pre-bargaining search
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We identify conditions under which a bargainer makes inefficiently large (small) investments in search for information about the opponent’s reservation price. The analysis starts with the observation that a player will invest too much (too little) if the opponent’s expected payoff is decreasing (increasing) in the probability that the player gets information. We develop comparative static results about over- and underinvestment as a function of the efficiency and distributional properties of mechanisms, their dependence on search outcomes, and the nature of the trading problem. The results do not depend on any specific bargaining mechanism and are illustrated in several examples.
DepartmentSloan School of Management
Journal of Institutional and Theoretical Economics
Wernerfelt, Birger. "Inefficient Pre-bargaining Search." Journal of Institutional and Theoretical Economics (June 2012) vol. 168, issue 2, pages 211-223.
Author's final manuscript