Abstract
We introduce a new approach to bargaining, with strategic and axiomatic foundations, into models of decentralized asset markets. According to this approach, which
encompasses the Nash (1950) solution as a special case, bilateral negotiations follow an agenda that partitions assets into bundles to be sold sequentially. We construct two
alternating-offer games consistent with this approach and characterize their subgame perfect equilibria. We show the revenue of the asset owner is maximized when assets
are sold one infinitesimal unit at a time. In a general equilibrium model with endogenous asset holdings, gradual bargaining reduces asset misallocation and prevents
market breakdowns.
encompasses the Nash (1950) solution as a special case, bilateral negotiations follow an agenda that partitions assets into bundles to be sold sequentially. We construct two
alternating-offer games consistent with this approach and characterize their subgame perfect equilibria. We show the revenue of the asset owner is maximized when assets
are sold one infinitesimal unit at a time. In a general equilibrium model with endogenous asset holdings, gradual bargaining reduces asset misallocation and prevents
market breakdowns.
| Original language | English |
|---|---|
| Number of pages | 38 |
| Journal | Review of Economic Dynamics |
| Early online date | 15 Oct 2020 |
| DOIs | |
| Publication status | E-pub ahead of print - 15 Oct 2020 |
Bibliographical note
provisional acceptance date added, based on record creation.Keywords
- Decentralized asset markets
- Bargaining with an agenda
- Nash program