tracking poverty over time in the absence of comparable consumption data following the endorsement by the international community of the millennium development goals mdg there has been an increasing demand for practical methods for steadily tracking poverty an economically intuitive and inexpensive methodology is explored for doing so in the absence of regular comparable data on household consumption the minimum data requirements for this methodology are the availability of a household budget survey and a series of surveys with a comparable set of asset data also contained in the budget survey this method is illustrated using a series of demographic and health surveys for kenya

bargaining on behalf of a constituency abstract we study bargaining situations in which one side consists of a group of people who elect a representative to bargain with another party on their behalf a two phase bargaining model is developed in which a principal agent problem between the constituency and its representative is embedded with a natural refinement of sequential equilibrium we characterize the set of equilibria and examine its efficiency properties we show that agency problems in the delegation relationship rather than asymmetric information between the two bargainers can cause severe bargaining inefficiency i e delay in reaching agreements extensions of the model and applications to union firm bargaining are then discussed briefly journal of economic literature classification numbers c78 d82 j52

choosing sides in matching games nash equilibria and comparative statics this paper characterizes equilibria in matching games where the institutional setting allows players to choose whether to become buyers sellers or not to participate in economic activity nash equilibrium consists of a partition of agents into buyers sellers and non participants such that agents in each group do not have an incentive to change their activity given the behaviour of other agents comparative static analysis demonstrates that when participation costs are so high that some agents choose not to participate a further increase in participation costs may increase the number of agents who participate in the matching process

marriage divorce and asymmetric information we use data on people s valuations of options outside marriage and beliefs about spouses options the data demonstrate that in some couples one spouse would be happier and the other spouse unhappier outside of some marriages suggesting that bargaining takes place and that spouses have private information we estimate a bargaining model with interdependent utility that quantifies the resulting inefficiencies our results show that people forgo some utility in order to make their spouses better off and in doing so offset much of the inefficiency generated by their imperfect knowledge thus we find evidence of asymmetric information and interdependent utility in marriage

bargaining search and outside options abstract this paper studies a two sided incomplete information bargaining model between a seller and a buyer the buyer has an outside option which is modeled as a sequential search process during which he can choose to return to bargaining at any time two cases are considered in regime i both agents have symmetric information about the search parameters we find that in contrast to bargaining with complete information the option to return to bargaining is not redundant in equilibrium however the no delay result still holds in regime ii where agents have asymmetric information about the outside option delay is possible the solution characterizes the parameters for renegotiation and those for search with no return to the bargaining table

some recent results in bargaining theory two person bargaining situations are very frequent in economic life among the most natural examples one can think of wage negotiations between an employer and a person he wishes to hire another example at a more aggregate level concerns wage renegotiations that take place periodically in large firms between the manager and the workers representative as a final example let me mention the simple and very usual situation of a seller and a potential buyer who bargain over the price of some indivisible object unlike for competitive markets economic theory and especially mathematical economics has not until recently been very helpful in explaining how prices are determined in these bargaining situations the usual explanations refer to a vague notion of respective bargaining powers of the two agents there is a clear need to precise the relations between this mysterious notion and quantifiable economic data like preferences what bargainers can get in case of an agreement outside options what they can get if agreement fails impatience risk aversion and finally information of bargainers about each other after the seminal contributions of hicks and zeuthen in the thirties john nash 1950 1953 was the first to adopt in the early fifties a systematic theoretical approach to the bargaining problem nash introduced a distinction between the axiomatic or normative approach on the one hand and the strategic or positive approach on the other hand of course the two approaches must not be viewed as independent what has come to be known as the nash program can be described as follows starting from an axiomatic solution having desirable normative properties like the solution proposed by nash himself is it possible to design a particular bargaining process that would naturally lead rational negotiators to the outcome prescribed by the axiomatic solution behind the word rational hides the main difficulty of this program find a satisfactory concept of non cooperative equilibrium for bargaining games

contracting in strategic situations abstract cooperative games are distinguished from noncooperative games by the ability to form binding pre play agreements the notion of a binding agreement however is ambiguous for two reasons first contracts can be enforced by various provisions for the payment of damages in the event of breach second contracts generally are incomplete not specifying unique actions for each possible state of the world this paper examines the interaction between incompletely specified and enforced pre play contracts and the outcomes that are achieved in 2 player strategic situations comparisons are made among various damage measures for breach of contract

bargaining with two sided incomplete information an infinite horizon model with alternating offers this paper examines an infinite horizon bargaining model incorporating five features two sided incomplete information with potentially information revealing strategies an infinite horizon uncertainty concerning the potential gains from trade an illumination of interesting qualitative bargaining issues and plausible free from arbitrarily specified out of equilibrium conjectures equilibria these features motivated in the paper have powerful implications a nash equilibrium exists and is generically both unique and sequential comparative static implications of variations in the game s specifications are developed we find that natural indications of bargaining strength emerge from the model and establish the intuitive result that an increase in a player s relative bargaining strength makes that player more likely to capture the gains from bargaining

qualitative uncertainty in a market with bilateral trading bargaining between a single seller and a succession of potential buyers of an indivisible object is studied in this paper the seller bargains with one buyer at a time and switching buyers is costly the seller does not know the buyers reservation prices and buyers cannot observe the quality of the object if the costs of switching buyers are high there exists a signalling equilibrium in which the seller s price offer reveals the quality of the object if the costs of switching are low adverse selection occurs and the high quality seller drops out of the market

fooling all of the people some of the time a theory of endogenous sequencing in confidential negotiations we analyse a bargaining game in which one party called the buyer has the option of choosing the sequence of negotiations with other participants called sellers when the sequencing of negotiations is confidential and the sellers goods are highly complementary efficient non dissipative equilibria exist in which the buyer randomizes over negotiation sequences in these equilibria the buyer can obtain higher pay offs than in pure strategy equilibria or in public negotiations the degree of sequencing uncertainty that maximizes buyer pay offs is inversely related to the aggregate bargaining power of the sellers

foundations of dynamic monopoly and the coase conjecture subgame perfect equilibria are characterized for a market in which the seller quotes a price each period assume zero costs positive interest rate continuum of buyers and some technical conditions if buyers valuations are positive then equilibrium is unique buyers strategies are stationary and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere otherwise a continuum of stationary equilibria can exist but at most one with analytic strategies coase s conjecture is verified for stationary strategies reducing the period length drives all prices to zero or the least valuation connections to bargaining models are described journal qf economic literature classification

a non cooperative bargaining theory with incomplete information verifiable types abstract we consider a non cooperative sequential bargaining game with incomplete information where two players negotiate for mechanisms with ex post verifiable types at the interim stage we prove the existence of a stationary sequential equilibrium of the bargaining game where the ex post nash bargaining solution with no delay is asymptotically implemented with probability one further the ex post nash bargaining solution is a unique outcome of a stationary equilibrium under the property of independence of irrelevant types iit whereby the response of every type of a player is independent of allocations proposed to his other types and under a self selection property of their belief

is inequality harmful for growth comment endogenous growth models have reignited interest in institutional and path dependencies in the economic growth process one reason for the interest in endogenous growth models is that they may explain why countries consistently grow at different rates in this vein it has been recently proposed that greater economic inequality reduces future economic growth an important paper in this literature is by torsten persson and guido tabellini 1994 who will be referred to as pt pt s model shows why it is reasonable to expect a negative relationship between inequality and future economic growth moreover their empirical evidence is consistent with their contention if pt s findings are robust to other data sets there would be important policy implications for example they imply that policy makers should not only be concerned with the distributional implications of government policies for political and social reasons but also because income distribution has long run effects on economic growth this indicates that greater u s income inequality since the early 1970 s may have resulted in lower subsequent economic growth however pt s results are somewhat fragile to various specifications suggesting that they should be replicated with different data sets and over different time periods pt p 617 with these implications in mind this study employs data from a panel of u s states to further explore the relationship between economic growth and income inequality in what follows section i summarizes pt s study and discusses how this comment extends their findings the empirical implementation and results in section ii directly examine the link between overall income inequality and growth section iii expands the analysis to alternative measures of income distribution and government policy one emphasis in section iii is the distinction between how the overall income distribution especially at the tails influences economic growth from how the relative well being of the median voter affects economic growth section iv provides some concluding discussion

the principle of convergence in wartime negotiations if war results from disagreement about relative strength then it ends when opponents learn enough about each other learning occurs when information is revealed by strategically manipulable negotiation behavior and nonmanipulable battlefield outcomes i present a model of simultaneous bargaining and fighting where both players can make offers and asymmetric information exists about the distribution of power in the markov perfect sequential equilibrium making and rejecting offers has informational value that outweighs the one provided by the battlefield however states use both sources of information to learn and settle before military victory the principle of convergence posits that warfare ceases to be useful when it loses its informational content and that belief in defeat victory is not necessary to terminate initiate hostilities thus the standard puzzle in international relations that seeks to account for prewar optimism on both sides may not be that relevant

an experiment on the hypothesis of involuntary truth signalling in bargaining abstract we examine face to face interaction in a two person bargaining game with incomplete information in which each bargainer can either have costs to be subtracted from his her bargaining agreement payoff or not the bargaining events are observed by onlookers who guess the cost situations of the participants the work of d gauthier 1978 morals by agreement oxford clarendon and r h frank 1988 passions within reason the strategic role of emotions new york norton suggests that the onlookers detection accuracy exceeds chance accuracy because of involuntary signals inherent in the behavior of the bargainers it is shown that cost guesses are somewhat more accurate than chance this effect however is entirely explainable by the onlookers information about objective features of the bargaining process journal of economic literature classification numbers c70 c91 d70 d82

bargaining and reputation the paper develops a reputation based theory of bargaining the idea is to investigate and highlight the influence of bargaining postures on bargaining outcomes a complete information bargaining model a la rubinstein is amended to accommodate irrational types who are obstinate and indeed for tractability assumed to be completely inflexible in their offers and demands a strong independence of procedures result is derived after initial postures have been adopted the bargaining outcome is independent of the fine details of the bargaining protocol so long as both players have the opportunity to make offers frequently the latter analysis yields a unique continuous time limit with a war of attrition structure in the continuous time game equilibrium is unique and entails delay consequently inefficiency the equilibrium outcome reflects the combined influence of the rates of time preference of the players and the ex ante probabilities of different irrational types as the probability of irrationality goes to zero delay and inefficiency disappear furthermore if there is a rich set of types for both agents the limit equilibrium payoffs are inversely proportional to their rates of time preference

the importance of incomplete information in explaining the existence of costly bankruptcy the standard theory of capital structure argues that firms trade off the tax advantage of debt against ba nkruptcy costs r a haugen and l w senbet 1978 pointed out that there is a problem with this theory if bankruptcy involves deadweig ht costs shareholders and bondholders have an incentive to renegotia te before it occurs since in this way bankruptcy and its costs can be avoided this implies costly bankruptcy will not occur and casts d oubt on the validity of the standard theory this paper uses noncoope rative bargaining theory to formally model this idea it then shows t hat if there is incomplete information costly bankruptcy can occur copyright 1987 by the review of economic studies limited

bargaining and the joint cost theory of strikes an experimental study this article reports on an experiment that was designed to test predictions about the frequency of disagreement strikes in games with complete information an empirical test of the joint cost theory which relates strike activity to the marginal cost of striking is based on a set of shrinking pie games in which subjects bargained in consecutive periods over how to divide a sum of money strike activity was a frequent occurrence in these games and moreover did not disappear over time the joint cost theory received some support indicating that further tests may be useful

no condition is permanent middle class in nigeria in the last decade the economic debate on existence and definition of the middle class has become particularly lively in many developing countries despite this growing interest the identification of the middle class group in these countries remains quite challenging building on a recently developed framework to define the middle class this paper tries to estimate the nigerian middle class size in a rigorous quantitative manner by exploiting publicly available panel data the expenditure associated to a 10 percent probability of falling into poverty is estimated and this is used as the middle class threshold for nigeria the threshold expenditure for the middle class in nigeria is found to be 378 39 naira per capita per day 2010 ppp relying on this threshold and through survey to survey imputation the size of nigeria s middle class in 2003 is also estimated the results show that there has been considerable improvement on the size of the middle class and poverty reduction between 2003 and 2013 poverty decreased between 2003 and 2013 from 45 to 33 percent while the middle class increased from 13 percent to 19 percent nevertheless the results still paint a heterogeneous picture of poverty and the middle class in nigeria where the largest portion of the population although above the poverty threshold continues to live with average or high vulnerability to poverty

renegotiation and information revelation over time the case of optimal labor contracts the paper analyzes the issue of commitment in grossman and hart s model of optimal labor contracts under asymmetric information about firm profitability we extend their framework by allowing employment to vary over time at equidistant intervals when both parties can precommit ex ante not to renegotiate the contract this replicates the grossman hart outcome each subperiod when precommitment is not possible information revealed through the contract can create pareto improving renegotiation opportunities and the issue of optimal information revelation arises the paper analyzes the impact of ex post pareto improving renegotiations on the optimal contract

firm specific training layoffs and unreliable workers firm specific training layoffs and unreliable workers 1 introduction early work in implicit contract theory argues that a long term relationship between a worker and a firm evolves due to the risk sharing nature of the implicit contract between a risk averse worker and a risk neutral firm some authors have criticized this initial argument see for example haltiwanger 1983 feeling that a long term relationship between a worker and a firm and the terms of an implicit contract between the two in large parts is explained via hiring costs training costs and the like this is the approach taken in the early work of becker 1975 oi 1962 and the most recent work of jovanovic 1979a these latter explanations are also appealing because long term relations between a worker and a firm are typically characterized by quits that decline with tenure and wages that increase with tenure as discussed in mortensen 1988 explanations of these phenomena fall into two categories job search theories or job training theories job search theories stress that there is a match specific component to the productivity of any worker firm match that a good match will result in a long term relationship explains why wages are positively correlated with tenure to explain a rising wage profile within a given match requires that the firm and the worker learn about the quality of their match over time a good match will be a long term one and the wage will rise over time as the match is discovered to be a good one jovanovic 1979b and barron and loewenstein 1985 model such a learning process job training theories maintain that long term relationships with rising wages exist because of firm specific training that increases with tenure again see jovanovic 1979a as an example this paper integrates these two theories in this paper firm specific training evolves as an increasing function of a worker s tenure with a firm this is so because there is a positive probability that a worker is unreliable in that he will be searching for another employer the firm being unable to identify in advance which workers are unreliable will update its prior belief as to a worker s reliability as a function of the worker s tenure the total level of training at any point in time will be an increasing function of this updated belief thus learning about the quality of a match an aspect of the job search theories plays an important role in explaining the level of firm specific training this learning process can also play a role in determining optimal layoffs if an unreliable worker is more likely to receive an acceptable outside offer when the worker is laid off than when he is employed the firm can use layoffs to elicit information about the worker s reliabiliy based upon this fact layoffs may occur even when the worker s marginal product exceeds his value of leisure before discussing the model in detail one crucial assumption deserves comment unlike previous work such a salop and salop 1976 enforceable self revealing contracts are ruled out by assumption thus the firm here cannot commit itself to a wage contract promising low wages initially in exchange for high wages as job tenure increases which contract would attract only reliable workers this assumption is of course a polar extreme but as such is consistent with more recent work in contract theory which investigates the terms of self enforcing contracts see for example holmstrom 1983 the idea is to provide a comparison with contracts in an idealized economy with no enforcement problems this assumption is justified if the cost of writing a legally enforceable contract is prohibitive or if as suggested in charmichael 1984 reputational forces are insufficient to deter a firm from cheating although workers here are risk neutral the model could be amended to include risk averse agents

payments and liquidity under adverse selection informational asymmetries regarding the future value of assets affect their role in exchange i construct a random matching economy composed of two assets a risk free bond and a lucas tree whose terminal value is privately known to its holder no restrictions are imposed on payment arrangements the main finding supports a pecking order theory of payments agents use their risk free bonds first in order to finance their spending shocks and they use their information sensitive assets only if their holdings of bonds are depleted the theory has implications for the optimal provision of risk free bonds the structure of asset returns and liquidity

dynamic bargaining in a supply chain with asymmetric demand information we analyze a dynamic bargaining game in which a seller and a buyer negotiate over quantity and payment to trade for a product both firms are impatient and they make alternating offers until an agreement is reached the buyer is privately informed about his type which can be high or low the high type s demand is stochastically larger than the low type s in the dynamic negotiation process the seller can screen whereas the buyer can signal information through their offers and the buyer has an endogenous and type dependent reservation profit with rational assumptions on the seller s belief structure we characterize the perfect bayesian equilibrium of the bargaining game interestingly we find that both quantity distortion and information rent may be avoided depending on the firms relative patience and the seller may reach an agreement with either the high type or the low type first or with both simultaneously furthermore we explore our model to characterize the effect of demand forecasting accuracy on firm profitability we find that improved demand forecast benefits the buyer but hurts the seller when the buyer s forecasting accuracy is low however once the buyer s forecasting accuracy exceeds a threshold both firms will benefit from further improvement of the forecast this observation makes an interesting contrast to previous findings based on the one shot principal agent model in which improvement of forecasting accuracy mostly leads to a win lose outcome for the two firms and the buyer has an incentive to improve his forecasting accuracy only when it is extremely low this paper was accepted by yossi aviv operations management

bargaining with incomplete information an infinite horizon model with two sided uncertainty the resolution of any bargaining conflict depends crucially on the relative urgency of the agents to reach agreement and the information each agent has about the others preferences this paper explores within the context of an infinite horizon bargaining model with two sided uncertainty how timing and information affect the rational behaviour of agents when commitment is not possible since the bargainers are uncertain about whether trade is desirable they must communicate some of their private information before an agreement can be reached this need for learning due to incomplete information about preferences results in bargaining inefficiencies trade often occurs after costly delay thus the model provides an explanation for the inefficient bargaining behaviour that appears to occur often in practice

dynamic bargaining with transaction costs a buyer and seller alternate making offers until an offer is accepted or someone terminates negotiations the seller s valuation is common knowledge but the buyer s valuation is known only by the buyer impatience to reach an agreement comes from two sources the traders discount future payoffs and there are transaction costs of bargaining equilibrium behavior involves either immediate trade delayed trade or immediate termination depending on the size of the gains from trade and the relative bargaining costs this contrasts with the pure discounting model where termination never occurs and the pure transaction cost model where delayed trade never occurs

decentralized coercion and self restraint in provincial taxation the ottoman empire 15th 16th centuries abstract for technological reasons the central administration of a state may want to entrust to provincial delegates the dual tasks of extracting provincial resources and converting them into coercive force this article establishes that the coercive threat that the delegates pose may make the administration cap the amount they extract the cap will cause the state not to internalize the marginal benefits of provincial economic development it will also induce inefficient economic policies the identified institutional setup is consistent with the political regime economic policy and legislation of the ottoman empire during its classical age

strategic delay in bargaining with two sided uncertainty the role of strategic delay is analyzed in an infinite horizon alternating offer model of bargaining a buyer and seller are engaged in the trade of a single object both bargainers have private information about their own preferences and are impatient in that delaying agreement is costly an equilibrium is constructed in which the bargainers signal the strength of their bargaining positions by delaying prior to making an offer a bargainer expecting large gains from trade is more impatient than one expecting small gains and hence makes concessions earlier on trade occurs whever gains from trade exist but due to the private information only after costly delay panmunjom korea upi the american general and the north korean general glared at each other across the table and the only sound was the wind howling across the barren hills outside their hut maj gen james b knapp negotiator for the united nations command unc was waiting for maj gen ri choonsun of the democratic people s republic of north korea to propose a recess they sat there arms folded for 42 hours not a word finally gen ri got up walked out and drove away evening bulletin philadelphia 11 april 1969

bilateral bargaining of heterogeneous groups how significant are patient partners abstract although many real bargaining situations involve more than one person on each side of the bargaining table much of the theoretical and experimental research concentrates on two single players we study a simple extension bilateral bargaining of four people two two person groups with different patience one might think that the outcome should depend only on the most patient members of each group the impatient members agree anyway and are hence irrelevant we find however that the less patient player has at least some impact on the outcome as an explanation we suggest a decrease in uncertainty about responder behaviour if a group is clearly asymmetric

inventories and wage bargaining abstract a union is assumed to make a sequence of take it or leave it wage demands to a firm which produces a storable good equilibrium has the following properties 1 the firm chooses to accumulate inventories even though there is no uncertainty 2 the accumulation of inventories lowers wages by reducing the rents from further production and therefore harms the union without benefitting the firm 3 there can be intermittent work stoppages i e strikes even though there is no uncertainty these work stoppages limit the firm s inventories and hence raise wages journal of economic literature classification numbers c78 c73 j31

muslim family law prenuptial agreements and the emergence of dowry in bangladesh we explain trends in dowry levels in bangladesh by drawing attention to an institutional feature of marriage contracts previously ignored in the literature the mehr or traditional islamic brideprice we develop a model of marriage contracts in which mehr serves as a barrier to husbands exiting marriage and a component of dowry as an amount that ex ante compensates the groom for the cost of mehr we investigate how mehr and dowry respond to exogenous changes in the costs of polygamy and divorce and show that our model gives a dierent set of predictions than traditional models we show that major changes in dowry levels took place precisely after the legal changes corresponding to simultaneous changes in levels of mehr

contract negotiation and the coase conjecture a strategic foundation for renegotiation proof contracts what does contract negotiation look like when some parties hold private information and negotiation frictions are negligible this paper analyzes this question and provides a foundation for renegotiation proof contracts in this environment the model extends the framework of the coase conjecture to situations in which the quantity or quality of the good is endogenously determined and to more general environments in which preferences are nonseparable in the traded goods as frictions become negligible all equilibria converge to a unique outcome which is separating efficient and straightforward to characterize

imperfect insurance and differing propensities to consume across households abstract this paper extends previous tests of consumption insurance by splitting the sample to examine whether the marginal propensity to consume mpc out of idiosyncratic income shocks is larger for low wealth households than it is for high wealth households using data from the psid i find 1 the mpc of low wealth households is higher than that of high wealth households there are indications that both precautionary savings behavior and liquidity constraints contribute to this difference 2 splitting the data using two different measures of wealth indicates that households perceive housing equity as illiquid 3 when low wealth households are split into two subgroups the mpc of the very low wealth group is smaller reflecting the insurance aspects of means tested safety net programs

alternating offer bargaining with two sided incomplete information i study alternating offer bargaining games with two sided incomplete information about the players discount rates for both perfect bayesian equilibrium and a rationalizability style notion i characterize the set of expected payoffs which may arise in the game i also construct bounds on agreements that may be made the set of expected payoffs is easy to compute and incorporate into applied models my main result is a full characterization of the set of perfect bayesian equilibrium payoffs for games in which the distribution over the players discount rates is of wide support yet is in a weak sense close to a point mass distribution i prove a lopsided convergence result each player cannot gain from a slight chance that she is a strong type but the player can suffer greatly if there is a slight chance that she is a weak type

timing decisions in organizations communication and authority in a dynamic environment this paper develops a theory of how organizations make timing decisions we consider a problem where an uninformed principal decides when to exercise an option and interacts with an informed but biased agent this problem is common examples include headquarters deciding when to close a plant drill an oil well or launch a product because time is irreversible the direction of the agent s bias is crucial for communication and allocation of authority when the agent favors late exercise centralized decision making where the principal retains authority and communicates with the agent often features full information revelation but ine cient delay delegation is never optimal in this case in contrast when the agent favors early exercise communication under centralized decision making is partial while option exercise is unbiased or delayed delegation is optimal if the bias is small or delegation can be timed thus delegating decisions such as plant closures is never optimal while delegating decisions such as product launches may be optimal

non cooperative bargaining theory an introduction the paper provides an informal introduction to some of the main themes of the recent literature on non cooperative or sequential bargaining models it focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by nash bargaining theory it illustrates the new insights offered by the non cooperative approach by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome finally the difficulties which arise in extending this analysis to two person bargaining with incomplete information and to n person bargaining are discussed this is a revised version of the fourth review of economic studies lecture presented in april 1985 at the joint meeting of the association of university teachers of economics and the royal economic society held in oxford the choice of lecturer is made by a panel whose members are currently professors hahn mirrlees and nobay and the paper is refereed in the usual way this paper aims to provide an informal and elementary introduction to an approach to bargaining which has received a great deal of attention over the past few years the approach involves writing down some particular sequence of moves offers and replies to be made over time in the course of negotiations and then looking for a non cooperative equilibrium in the game thus specified in practice a perfect equilibrium or in games of incomplete information a sequential equilibrium while the approach appears at first sight to be very different in spirit from the traditional axiomatic approach in which a bargaining solution is specified by appealing to a number of general requirements which are deemed appropriate on the basis of some a priori considerations the two approaches are in fact complementary while the

the developing world s bulging but vulnerable middle class summary western notions of the middle class are of little obvious relevance to developing countries instead the middle class is identified here as those living above the median poverty line of developing countries even if still poor by rich country standards over 1990 2005 economic growth and global distributional shifts allowed an extra 1 2 billion people to join the developing world s middle class four fifths came from asia and half from china many of those in this new middle class remain fairly close to poverty only 100 million of the 1 2 billion would not be considered poor in any developing county economic growth typically came with an expanding middle class

non cooperative bargaining and union formation we study a union formation decision problem when workers consist of two groups distinguished by different productivities workers may form either a joint union or two separate unions the whole decision process is modelled as an extensive form bargaining game workers form a joint union when the sizes or productivities of the groups are similar in the first case there is a wage differential which is more less than proportional to the productivity difference if the size of the more productive is smaller larger than that of the less productive in the second case there is no wage differential in this paper we study a union formation decision problem when workers consist of two groups distinguished by different productivities they may form either a joint union or two separate unions depending on the relative size and productivity of the two groups the whole decision process is modelled as an extensive form bargaining game in which the two groups of workers bargain with each other as well as with a firm the labour market is sharply distinguished from the goods market by the widespread practice of collective bargaining usually several groups of workers with different characteristics for example skill level or geographical location are represented as a single unit and or several employers form a single bargaining unit against a giant union this multiplicity of bargaining units creates a complicated bargaining structure and makes the outcome hard to analyse the purpose of this paper is to provide a model which captures this complexity and at the same time clarifies the underlying structure of bargaining power although economists have been aware of the multiplicity problem for a long time it has been received little rigorous theoretical treatment until recently davidson 1985 examined the possible gains that can be obtained by trade unions through joint bargaining in an oligopolistic industry there is a positive externality due to the fact that a higher wage rate in one firm generates a larger demand hence a higher wage in competing firms when a joint union is organized these externalities are internalized to the benefit of workers horn and wolinsky 1985 investigated the equilibrium pattern of unionization in an industry where a firm employs two types of workers they found that workers tend to form a single union when the two types are substitutes in the sense that the incremental contribution of one group to the firm s revenue is decreasing with respect to the size of the other group since workers bargaining power comes from the loss that they can

equilibria in extensive games the purpose of this note is to comment on the fundamental difficulties which exist in the foundations of the theory of extensive form games since selten 1973 first pointed out that it is not adequate simply to follow von neumann and morgenstern in replacing an extensive form game by its normal form there have been numerous attempts at defining an equilibrium concept for extensive form games which would fulfil the same role that nash equilibrium fulfils for normal form games notable among these are selten s 1975 two perfectness ideas and the kreps and wilson 1982 notion of a sequential equilibrium but there is also myerson s idea of a proper equilibrium kalai and samet s persistent equilibrium and numerous others the issue is particularly pressing in the study of non cooperative bargaining games with imperfect or incomplete information here sequential equilibrium has been the idea most used partly because it is couched in terms consistent with orthodox bayesian decision theory and partly because it is technically easier to apply than for example selten s trembling hand perfect idea among other authors rubinstein 1983b has noted how sensitive such analyses including his own 1983a paper are to the conjectures players are assumed to form at information sets which will not be reached in equilibrium2 and it is this question which lies at the root of the problem both the power of the equilibrium ideas under study in producing results3 and their weakness in being difficult to justify lie in the fact that they take into account potential behaviour at information sets which will not be reached in equilibrium in this note two methodological points are made the first is that the problems in justifying the use of the various equilibrium ideas can be traced to a considerable degree to the fact that the game structure has been overabstracted4 in particular the mechanism by means of which the players find their way to an equilibrium is typically abstracted away altogether but an appropriate justification requires taking some view on the nature of this mechanism ideally one would wish to offer a formal model of the equilibriating

relational contracts and the value of relationships this article studies optimal relational contracts when the value of the relationship between contracting parties is not commonly known i consider a principal agent setting where the principal has persistent private information about her outside option i show that if the principal has the bargaining power she wants to understate her outside option to provide strong incentives and then renege on promised payments while if the uninformed agent has the bargaining power the principal wants to overstate her outside option to capture more surplus i characterize how information is revealed how the relationship evolves and how this depends on bargaining power jel c78 d82 d83 d86

selective acceptance and inefficiency in a two issue complete information bargaining game abstract this paper explores the effects of a selective acceptance rule on the outcome of two issue negotiations the alternating offer game introduced here allows for the possibility that settlement may be reached on one issue while negotiation continues about the other this model captures features of laws that are generally believed to increase efficiency the analysis shows that if one issue is indivisible there are inefficient subgame perfect equilibria with no pareto improving alternative equilibria with opposing valuations rapid communication guarantees inefficiency these are unique examples of this strong form of inefficiency in an alternating offer bargaining game with complete and perfect information journal of economic literature classification numbers c72 j30

bargaining and international environmental agreements this article surveys game theoretic papers focused on the negotiation process that leads to an international environmental agreement most of the papers considered apply bargaining theory although other approaches have been considered as well among other issues the papers considered analyze the burden sharing rule that will result from a negotiation over a global public good the role of information asymmetries the impact of unilateral commitments delegation and ratification whether or not countries are going to form groups during the negotiation process and the influence of the expectation of a future bargaining process on investment decisions the basic bargaining model is optimistic as it predicts that countries will reach an efficient agreement immediately however all the developments of this model surveyed afterwards are rather pessimistic and even the basic model has perverse incentives for pre negotiation signals

the game of negotiations ordering issues and implementing agreements abstract we use a two issue bargaining model with asymmetric information to study agent choice of how to structure bargaining we uncover the settings in which different agenda structures are chosen in equilibrium how the order in which issues are bargained over matters and what impact the rules for implementing agreements have if agreements are implemented as they are reached easy issues are negotiated first and hard issues later if agreements are implemented only after all issues are settled then it is size that matters with large issues settled first all parties prefer the former rules of implementation to the latter

on the role of patience in collusive bertrand duopolies abstract this paper analyzes the role of patience in a repeated bertrand duopoly where firms bargain over which collusive price and market share to implement it is shown that the least patient firm s market share is not monotone in its own discount factor

bargaining structure and strike activity in this paper the authors examine the nature of the relationship between bargaining structure and strike activity in particular they focus on the implications of the fact that the amount of information revealed by a union s actions depends on the bargaining environment in which it operates the authors demonstrate that a union representing workers of more than one firm will face a greater incentive to reject offers than an independent union this implies that a merger of two unions or the formation of bargaining coalitions will lead to a greater level of strike activity

a bargaining model with incomplete information about time preferences etude d un jeu de negociation strategique sequentiel avec information incomplete caracterisation d une classe d equilibres sequentiels appeles equilibres sequentiels de negociation et demonstration de l unicite de cet equilibre

communication in bargaining over decision rights abstract this paper develops a model of bargaining over decision rights between an uninformed principal and an informed but self interested agent we introduce two different bargaining mechanisms tacit and explicit bargaining in tacit bargaining an uninformed principal makes a take it or leave it price offer to the agent who then decides whether to accept or reject the offer in the equilibrium of the game the principal inefficiently screens out some agent types so that the agent s private information cannot be fully utilized when the decision is made in explicit bargaining in which parties can communicate explicitly via cheap talk before tacit bargaining however an equilibrium with no such inefficient screening exists even when the conflict of interest is arbitrarily large we also follow a mechanism design approach showing that under certain conditions explicit bargaining is an optimal bargaining mechanism that maximizes the joint surplus of the parties

north south climate change negotiations a sequential game with asymmetric information this article determines the conditions under which thesouthern countries should act together or separately whilenegotiating with the north about climate change policy andabout the conditions for future southern engagement the papermodels the international negotiations with complete and withasymmetric information in a dynamic framework results showthat depending on their characteristics the differentplayers can obtain benefits delaying the moment of theagreement

economic interdependence bargaining power and political influence bargaining theory is used to evaluate the proposition that asymmetrical economic interdependence among states is a source of political power it is shown that asymmetrical economic interdependence does not imply that less dependent actors will be able to exercise political influence over more dependent ones the use of economic interdependence for political influence requires instead that the exchange of economic resources for political concessions make both parties to a relationship better off than they would be if they bargained over the distribution of the gains from the economic relationship alone whether this is true is independent of the degree of asymmetry in the economic relationship or its direction an explanation is given for the fact that other scholars have reached different conclusions and the implications of these results for our understanding of a variety of types of relations among governments are derived

the analysis of causality in escape clause cases under section 201 of the trade act of 1974 the so called escape clause a domestic industry that is seriously injured can obtain temporary relief if imports are the substantial cause of such injury this paper develops a methodology to determine the change in a domestic industry s production as a result of changes in import supply demand and domestic supply and so determine whether or not an industry is entitled to section 201 relief this methodology is illustrated by application to two recent section 201 investigations wood shakes and shingles and nonrubber footwear copyright 1988 by blackwell publishing ltd

equilibria of the sealed bid mechanism for bargaining with incomplete information we study the nash equilibria of the sealed bid bargaining mechanism with incomplete information a nonzero sum game for the case of uniform priors we describe two uncountably numerous families of equilibria the first has differentiable strategies in the second the strategies are step functions the efficiencies of these equilibria range from second best to zero for independent nonuniform priors we show that a similar situation obtains these results seem discouraging with regard to using the sealed bid mechanism in practice the mechanism might be salvaged however if bargainers turn out to confine themselves to linear strategy equilibria

bargaining with common values this paper examines a bargaining model with asymmetric information in which the private valuations of the two bargaining agents are correlated it shows that equilibria in such models typically exhibit a significant probability of a significant delay to agreement the paper characterizes the unique perfect bayesian equilibrium to the game in which an uninformed buyer makes offers to a privately informed seller it also shows by example that in this framework bargainers may rationally break off negotiations even in the presence of commonly known gains from trade

what is middle class about the middle classes around the world we expect a lot from the middle classes jim frederick writing in time magazine in 2002 stated china s burgeoning middle class holds the key to the future of the country in a more academic vein easterly 2001 concludes based on a comparison of a large number of countries that countries that have a larger middle class tend to grow faster at least if they are not too ethnically diverse in another article birdsall graham and pettinato 2000 rue the shrinking of the middle class the backbone of both the market economy and of democracy in most advanced societies in the face of burgeoning globalization the economic historian david landes writing about the wealth and poverty of nations 1998 explains england s early ascendancy in terms of the great english middle class of the eighteenth and nineteenth centuries of course there is nothing new about this faith in the middle class it follows a long line of theorizing going back at least to max weber 1905 at least three distinct arguments are traditionally made in one new entrepreneurs armed with a capacity and a tolerance for delayed gratification emerge from the middle class and create employment and productivity growth for the rest of society for a formalization of this argument see acemoglu and zilibotti 1997 in a second perhaps more conventional view the middle class is primarily a source of vital inputs for the entrepreneurial class it is their middle class values their emphasis on the accumulation of human capital and savings that makes them central to the process of capitalist accumulation for example doepke and zilibotti 2005 2007 the third view a staple of the business press emphasizes the middle class consumer the consumer who is willing to pay a little extra for quality in this view the middle class demand for quality consumer goods feeds investment in production and marketing which in turn raises income levels for everyone murphy shleifer and vishny 1989 1 this essay asks what we should make of these arguments in the context of today s developing countries starting from data on patterns of consumption and investment by the middle class we look for what is distinct about the global middle class especially when compared to the global poor defined as those whose per capita daily consumption valued at purchasing power parity exchange rates is below 2 a day who were the subject of a previous essay in this journal banerjee and duflo 2007b in particular is there anything special about the way the middle class spend their money earn their incomes or bring up their children

uncertainty and delay in bargaining this paper investigates the relationship between uncertainty and delay of agreement in the one sided offer bargaining model with two sided uncertainty where the seller makes offers we construct a weak stationary equilibrium in which different types of the seller charge different prices in every period we completely characterize the separating equilibrium by three regularity conditions and show that the time interval between offers converges to zero the seller s initial price offer in a separating equilibrium converges with probability 1 to the lowest valuation of the buyer if and only if the gain from trading is common knowledge we have witnessed a proliferation of sequential bargaining models that with a few remarkable exceptions fudenberg and tirole 1983 cramton 1984 and chatterjee and samuelson 1987 are based on models with one sided uncertainty the importance of studying bargaining models with one sided uncertainty is that despite their highly special informational structure we can derive valuable insights into the role of uncertainty in the delay in reaching an agreement while keeping the computational exercise tractable however the assumption of one sided uncertainty essentially excludes the situation where the buyer s actual reservation value is lower than the seller s actual reservation value though they are still engaged in the bargaining process the primary objective of this paper is to investigate the role of uncertainty about the gain from trading in a sequential bargaining model with two sided incomplete information in the models with one sided incomplete information important studies fudenberg levine and tirole 1985 and gul sonnenschein and wilson 1986 are often based on weak stationary equilibria where the equilibrium strategy of each player only depends upon the posterior conjecture about the other player and the previous period s offer although the importance of two sided uncertainty and the weak stationary equilibrium is well recognized previous research on sequential bargaining models has not combined the two features within the same framework studies on the models under two sided uncertainty have not focused on weak stationary equilibria for example cramton 1984 computes a specific sequential equilibrium with interesting properties in which the equilibrium strategies of both players depend upon histories in a rather complex fashion on the other hand it is only in models under one sided uncertainty that the weak stationary equilibrium has been extensively studied this paper computes and analyzes the weak stationary equilibria in a model under two sided uncertainty in order to investigate the effect of uncertainty on the delay in agreement we will extend the results from previous studies of one sided uncertainty models the computation of the equilibrium in models with two sided uncertainty is generally very complicated furthermore we must identify a sensible outcome if more than one equilibrium exists in the model to simplify the analysis we choose a standard bargaining

employee buyout in a bargaining game with asymmetric information why are some firms purchased by their employees this paper explores this question theoretically suggesting that employees may attempt to overcome their informational handicap regarding firm profitability by making simultaneous offers on wages and a purchase price for the firm owners of relatively unprofitable firms will tend to sell out for low prices instead of paying high wages whereas owners of profitable firms will prefer to pay high wages over receiving low firm prices the buyout serves as a screening mechanism the probability of an employee buyout decreases with the employees outside options and increases with owners outside options copyright 1996 by american economic association

strategic bargaining models and interpretation of strike data attrition screening and signalling models of strategic bargaining are characterized in terms of their predictions about the incidence mean duration and settlement rates of strikes and the terms of wage settlements these predictions are compared with the general features observed in empirical studies of strikes in canada and the united states conclusions are drawn about the types of models capable of generating these features and about the conformity of the models to the evidence methods are described for computing the numerical examples used to illustrate the models

asymmetric learning and the wage productivity relationship abstract a worker s current employer will typically acquire information concerning that worker s productivity that is not directly available to other potential employers a number of papers have considered this idea and argued that in such a setting these other firms will utilize the actions of the current employer as signals of productivity in this paper i argue that this perspective can explain the existence of puzzling results concerning the relationship between wage and productivity growth found in the classic studies of medoff and abraham 1980 1981

investing in a relationship a principal can make an investment anticipating a repeated relationship with an agent but the agent may appropriate the returns through ex post bargaining i study how this holdup problem and efficiency depend on the contracting environment when investment returns are observable informal contracts ex post can be more efficient than formal contracts as they induce higher investment ex ante the principal invests not only to generate direct returns but also to improve relational incentives unobservability of returns increases the principal s ability to appropriate the returns but reduces her ability to improve incentives the optimal information structure depends on bargaining power

sharing the wealth when should firms treat customers as partners marketers often stress the importance of treating customers as partners a fundamental premise of this perspective is that all parties can be weakly better off if they work together to increase joint surplus and reach pareto efficient agreements for marketing managers this implies organizing marketing activities in a manner that maximizes total surplus this logic is theoretically sound when agreements between partners are limitless and costless in most consumer marketing contexts business to consumer this is typically not true the question i ask is should one still expect firms to partner with consumers and reach pareto efficient agreements in this paper i use the example of a firm s choice of product configuration to demonstrate two effects first i show that a firm may configure a product in a manner that reduces total surplus but increases firm profits second one might conjecture that increased competition would eliminate this effect but i show that in a duopoly firm profits may be increasing in the cost of product completion this second result suggests that firms may prefer to remain inefficient and or stifie innovations both results violate a fundamental premise of partnering that firms and consumers should work together to increase total surplus and reach pareto efficient agreements the model illustrates that pareto efficient agreements are less likely to occur if negotiation with individual partners is infeasible or costly such as in business to consumer contexts consumer marketers in one to many marketing environments should be wary of treating customers as partners because pareto efficient agreements may not be optimal for their firm

reputation and hegemonic stability a game theoretic analysis we develop and explicate a game theoretic model in which repeated play incomplete information and reputation are major elements a significant advance of this model is the way it represents cooperation under incomplete information among rational actors of different sizes the model is used to formalize certain aspects of the theory of hegemonic stability it shows that the dilemma or limits of hegemonic stability look like natural attributes of games where reputation is involved unifying both benevolent and coercive strands of hegemony theory an example drawn from recent developments in the organization of petroleum exporting countries shows how our model of reputation guides the study of hegemonic regime construction we conclude by comparing the nature of cooperative behavior under conditions of complete and incomplete information

a bargaining model with incomplete information multiplicity of sequential equilibria is a common problem in bargaining models with incomplete information in which the informed player makes an offer most of these equilibria are supported by optimistic conjectures by the uninformed player this paper re examines the bargaining model in rubinstein 1985a b monotonicity restrictions are placed on off the equilibrium path beliefs to exclude equilibria supported by optimistic conjectures sequential equilibria that survive these restrictions are characterized

a multistage model of bargaining this paper presents a simple multistage model of bargaining wherein a seller makes an offer that can be either accepted or refused if rejected the process continues how the seller s ability to make commitments affects bargaining outcomes is analysed by comparing the commitment equilibria to those arising when commitment is impossible the effects of increasing uncertainty about preferences and varying the length of the bargaining horizon are analysed the ways in which the bargaining environment can be changed to improve outcomes are discussed

sequential bargaining with incomplete information this paper describes a simple two person two period bargaining game and solves it using the concept of perfect bayesian equilibrium in which the actions of each player convey information which is used by his opponent the paper examines the effects of changes in bargaining costs the size of the contract zone and the length of the bargaining process on such aspects of the solution as the probability of impasse and the likelihood of concessions the combination of information transfer and the lack of pre commitment embodied in perfectness yields many surprising results common perceptions about the effects of parameter changes on bargaining processes are suspect and should be checked in the particular game being discussed

self control and bargaining abstract this paper examines a bargaining game with alternating proposals where sophisticated quasi hyperbolic discounters negotiate over an infinite stream of payoffs in markov perfect equilibrium payoffs are almost always unique and a small advantage in self control can result in a large advantage in payoff in subgame perfect equilibrium a multiplicity of payoffs and delay can arise despite the complete information setting markov perfect equilibria are the best subgame perfect equilibria for the agent with more self control and the worst for the agent with less self control naivete can help a player by increasing their reservation value

posted pricing vs bargaining in sequential selling process we study the role of bargaining in a firm s sequential selling process the seller firm under consideration sequentially sells a fixed amount of stock to a random arrival stream of potential buyers who are heterogeneous in product valuation based on the stock level and the time to the end of the selling season the seller may dynamically choose either to post a take it or leave it price or to engage in bargaining with an arriving buyer we introduce a stochastic order called the scaled pricing order for the buyer s valuation distribution the scaled pricing order measures the average portion of trade surplus that the seller can obtain by posting a price for distributions with increasing length biased hazard rate checking the property of increasing decreasing scaled pricing order boils down to verifying the concavity convexity of the mills ratio we fully characterize the family of distributions that are invariant in the scaled pricing order which includes uniform and exponential distributions

a social contract account for csr as an extended model of corporate governance i rational bargaining and justification this essay seeks to give a contractarian foundation to the concept of corporate social responsibility csr meant as an extended model of corporate governance of the firm it focuses on justification according to the contractarian point of view leaving compliance and implementation problems to a related article sacconi 2004b forthcoming in the journal of business ethics it begins by providing a definition of csr as an extended model of corporate governance based on the fiduciary duties owed to all the firm s stakeholders then by establishing the basic context of incompleteness of contracts and abuse of authority it analyses how the extended view of corporate governance arises directly from criticism of the contemporary neo institutional economic theory of the firm thereafter an application of the theory of bargaining games is used to deduce the structure of a multi stakeholder firm on the basis of the idea of a constitutional contract which satisfies basic requirements of impartial justification and accordance with intuitions of social justice this is a sequential model of constitutional bargaining whereby a constitution is first chosen and then a post constitutional coalition game is played on the basis of the unique solution given to each step in the bargaining model the quest for a prescriptive theory of governance and strategic management is accomplished so that i am able to define an objective function for the firm consistent with the idea of csr finally a contractarian potential explanation for the emergence of the multi fiduciary firm is provided

what s so spatial about diversification in nigeria summary many households in developing countries allocate their productive assets among various income generating activities in order to develop a portfolio of income from occupations with different degrees of risk expected returns and seasonal and liquidity constraints the push and pull factors influencing diversification decisions of households are widely discussed in the literature however no study to date has taken into account spatial interdependence of household decisions in spite of various channels of neighborhood effects such as information flow learning from others social networks and agglomeration economies this paper fills in the gap by incorporating spatial dependence in the choice model of diversification using a spatial auto regressive probit model and an advanced bayesian strategy to its estimation empirical analysis is run taking advantage of the nigerian general household survey panel 2010 11 providing gis coordinates for the surveyed households the results imply endogeneity of the neighbors decisions to allocate their productive assets among various occupations and signal the importance of social learning and agglomeration effects favoring the spillover of diversification activities through neighbors networks and local markets the households decisions respond to local environment factors such as weather shocks or infrastructural constraints as shown by the regional differences taking into account spatial interdependence is particularly important in the event of a wide divide of the data available into different zones as for example in case of the nigerian northern region where the states are larger

simultaneous offers and the inefficiency of bargaining a two period example abstract it is shown that the pareto optimal outcomes in a two period simultaneous move bargaining model violate forwards induction rationality when the players are sufficiently patient this bargaining model describes a situation where a principal is represented by an agent whose flexibility is restricted hence a bargaining process with such agents can create costly delays the result also provides another example of the power of forwards induction and stability

institutions and short run macroeconomic performance abstract this paper reviews the growing interest in institutions it argues that the explanation for this interest is a fresh awareness of how institutions affect economic performance this connection arises because many economic interaction take the form of one or other of three classic games prisoners dilemma coordination and chicken and the outcome in these games and hence performance of the economy is influenced by the institutional context of these interactions the paper provides a detailed illustration of this argument with a survey of the literature which relates unemployment performances to the institutions of wage setting in oecd countries