Bargaining and efficiency in networks

Dilip Abreu, Mihai Manea

Research output: Contribution to journalArticle

28 Scopus citations

Abstract

We study an infinite horizon game in which pairs of players connected in a network are randomly matched to bargain over a unit surplus. Players who reach agreement are removed from the network without replacement. The global logic of efficient matchings and the local nature of bargaining, in combination with the irreversible exit of player pairs following agreements, create severe hurdles to the attainment of efficiency in equilibrium. For many networks all Markov perfect equilibria of the bargaining game are inefficient, even as players become patient. We investigate how incentives need to be structured in order to achieve efficiency via subgame perfect, but non-Markovian, equilibria. The analysis extends to an alternative model in which individual players are selected according to some probability distribution, and a chosen player can select a neighbor with whom to bargain.

Original languageEnglish (US)
Pages (from-to)43-70
Number of pages28
JournalJournal of Economic Theory
Volume147
Issue number1
DOIs
StatePublished - Jan 2012

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Bargaining
  • Decentralized markets
  • Efficiency
  • Networks
  • Random matching
  • Stochastic games

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