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Status Quo Bias in Bargaining: An extension of the Myerson Satterthwaite Theorem with an application to the Coase Theorem

McKelvey, Richard D. and Page, Talbot (2000) Status Quo Bias in Bargaining: An extension of the Myerson Satterthwaite Theorem with an application to the Coase Theorem. Social Science Working Paper, 1035. California Institute of Technology , Pasadena, CA. (Unpublished)

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We use a generalized version of the Myerson-Satterthwaite theorem to study inefficiencies in bilateral bargaining over trade of an indivisible good, where there is two sided private information on the valuations. We show that when preferences are convex and quasi linear, and when the private information represents the magnitude of the utility gain or loss and follows a uniform distribution, that the most efficient mechanism always exhibits a bias towards the status quo. In the case that utility functions are quadratic in the amount traded, we prove that for any incentive compatible direct mechanism, there is an expected bias towards the disagreement point. In other words, for the class of preferences we study, there is a strategic advantage to property rights in the Coase bargaining setup in the presence of incomplete information.

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Additional Information:This paper was previously titled “The Coase Theorem with Private Information." The financial support of the National Science Foundation (Grant #SBR-9223701) is gratefully acknowledged. We thank Kim Border, John Duggan, Tom Palfrey, Andy Postlewaite, and Harl Ryder for valuable discussions and suggestions, and especially Kim Border for pointing us to the right duality results necessary in the proof of part B of our proposition. Published as McKelvey, R.D., & Page, T. (2002). Status quo bias in bargaining: An extension of the Myerson–Satterthwaite theorem with an application to the Coase theorem. Journal of Economic Theory, 107(2), 336-355.
Group:Social Science Working Papers
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Series Name:Social Science Working Paper
Issue or Number:1035
Record Number:CaltechAUTHORS:20170811-153048325
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80319
Deposited By: Jacquelyn Bussone
Deposited On:11 Aug 2017 23:40
Last Modified:03 Oct 2019 18:29

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