Karl Schlag, University of Vienna: "Bargaining under Incomplete Information with the Help of Delay"

(with Andriy Zapechelnyuk)

We study bargaining under incomplete information, with applications to trade and to provision of public good. In our setting, agents not only agree on how they share their surplus, but also when the trade takes place. We are interested in bargaining rules that do not depend on priors. We find a unique rule that satisfies a set of axioms. Under this rule, the higher the surplus, the sooner the agents agree to trade. Moreover, the surplus is shared as in the Nash bargaining solution. We present a dynamic protocol that implements this rule for any priors. Heterogeneous discount factors and degrees of risk aversion can be included.