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Published August 16, 2017 | Submitted
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Dynamic Efficiency and Voluntary Implementation in Markets with Repeated Pairwise Bargaining


We examine a simple bargaining setting, where heterogeneous buyers and sellers are repeatedly matched with each other. We begin by characterizing efficiency in such a dynamic setting, and discuss how it differs from efficiency in centralized static setting. We then study the allocations which can result in equilibrium when the matched buyers and sellers bargain through some extensive game form. We take an implementation approach, characterizing the possible allocation rules which result as the extensive game form is varied. We are particularly concerned with the impact of making trade voluntary: imposing individual rationality on and off the equilibrium path. No buyer or seller consummates an agreement which leaves them worse off than the discounted expected value of their future rematching in the market. Finally, we compare and contrast the efficient allocations with those that could ever arise as the equlibria of some voluntary negotiation procedure.

Additional Information

This project was initiated while Jackson was visiting the California Institute of Technology and continued while Palfrey was visiting CREST-LEI, whose support the authors gratefully acknowledge. Financial support was also provided under NSF grant SBR-9507912. We thank Nabil Al-Najjar, Larry Ausubel, Eddie Dekel, Larry Jones, Dilip Mookherjee, Mike Peters, and Asher Wolinsky for helpful conversations and suggestions. Published as Jackson, Matthew O. and Palfrey, Thomas R. (1998) Efficiency and Voluntary Implementation in Markets with Repeated Pairwise Bargaining. Econometrica, 66 (6). pp. 1353-1388.

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