Robust Predictions in Coasian Bargaining
- American Economic Review: Insights (Forthcoming)
This paper studies robust predictions when players may have additional information
in an otherwise standard seller-offer bargaining with private values. Players’
extra information gives rise to higher-order uncertainties about the underlying surplus.
We show that the equilibrium outcomes in the frequent-offer limit depend critically on the
nature of second-order uncertainty: (i) when the seller’s beliefs about the buyer’s values
are public, the limiting equilibrium outcomes are efficient and any surplus division is possible;
(ii) when the seller’s beliefs are private, any feasible and individually rational payoffs
can be the limiting equilibrium payoffs.
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