Bargaining under Liquidity Constraints: Unified Strategic Foundations of the Nash and Kalai Solution

Tai-Wei Hu*, Guillaume Rocheteau*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

Abstract

We provide unified strategic foundations for the Nash (1950) and Kalai (1977) solutions in the context of negotiations under liquidity constraints. We propose an N-round game where in each round a seller and a buyer with limited payment capacity negotiate a bundle of divisible goods, where bundle sizes can vary across rounds, according to Rubinstein's (1982) alternating-offer game. The game implements the Nash solution if N=1 and the Kalai solution if N=∞ and bundle sizes are infinitesimal. If N is set by one player ex ante, the buyer chooses N=1 while the seller chooses N=∞. We endogenize liquidity constraints and show they binds for all N<∞, even when there is no cost in holding liquidity.
Original languageEnglish
Article number105098
Number of pages45
JournalJournal of Economic Theory
Volume189
Early online date24 Jul 2020
DOIs
Publication statusPublished - 24 Jul 2020

Keywords

  • bargaining with an agenda
  • Nash program
  • bargaining solution

Fingerprint

Dive into the research topics of 'Bargaining under Liquidity Constraints: Unified Strategic Foundations of the Nash and Kalai Solution'. Together they form a unique fingerprint.

Cite this