Folk Theorems in the Negotiation Game with Transaction Costs

Abstract

Even with complete information, two-person bargaining can generate

a large number of equilibria and inefficiencies in (i) negotiation

games where disagreement payoffs are endogenously determined

(Busch and Wen 1995) and (ii) costly bargaining games where

there are transaction costs (Anderlini and Felli 2001). This paper

considers a model of negotiation with transaction costs. It is shown

that, in contrast to the aforementioned analyses, full Folk theorems

are obtained in our model.