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FRIHUMSAM-Fri prosj.st. hum og sam

Causes of Bargaining Failure

Alternative title: Forhandlinger

Awarded: NOK 9.6 mill.

Project Number:

250506

Project Period:

2016 - 2023

Location:

Partner countries:

A core challenge in the social sciences is to understand why parties have problems in reaching mutually beneficial agreements. Why do labor negotiations sometimes end in costly strikes? Why do business partners sometimes resort to costly arbitration? Why is legislative decision making from time to time bogged down in protracted gridlock? Why are some trade negotiations finalized only after costly trade wars? Why do arms limitation talks sometimes derail and fail to halt arms races for prolonged periods? Why have nations so far failed to agree on abatement measures sufficient to halt global warming? And, why do divorce settlements frequently end in costly and upsetting legal battles? The project address such core questions in an active research frontier and has tired to identify: i) the causes of breakdown and delay in bargaining, and ii) the interaction of such inefficiencies with bargaining institutions. The projects approach has been two-fold. First, we have draw on formal modeling in order to isolate a set of mechanisms that---under specified behavioral and institutional assumptions---are capable of creating delay and inefficiencies in bargaining. Second, we have used controlled and incentivized experiments to explore the empirical content of such mechanisms. The ambition of the project was to sort mechanisms according to their relative explanatory force. This ambition has required substantial work in to order arrive at credible designs in which the support for one mechanism simultaneously weakens the support for an alternative mechanism (strategic hypotheses testing). By refining theoretical models that build on mechanisms with empirical potency and testing their novel predictions, we have made scientific progress. The project has culminated in a series of individual scientific works with different ambitions, hypotheses, and examinations of mechanisms. In total, as of 2023, the project has contributed to the publication of 19 articles in very good international journals, as for instance Games and Economic Behavior, International Economic Review, Management Science, PlosOne, and Scandinavian Journal of Economics. These works are standalone, and we refer to the articles for results and overviews of the literature.

I hovedsak har prosjektet tatt for seg sentrale problemstillinger innenfor forhandlinger og forhandlingsinstitusjoner. Prosjektet både utviklet teoretiske modeller for mekanismer, samt benyttet laboratorie eksperimenter for å undersøke og rafinere disse mekanismene. Prosjektet har kulminert i en rekke enkeltstående vitenskapelige arbeider med forskjellige ambisjoner, hypoteser, og undersøkelser av mekanismer. Totalt 19 artikler er publisert i meget gode internasjonale tidsskrifter, slik som Games and Economic Behavior, International Economic Review, Management Science, PlosOne, og Scandinavian Journal of Economics. Disse arbeidene er enkeltstående og vi refererer til artiklene for resultater og oversikter over litteraturen. Det er ikke meningsfylt med en overordnet oppsummering av disse resultatene.

The workhorse model of bargaining in economics and political science assume rational agents and complete and perfect information. This model is unable to account for delay or breakdown in bargaining. An emerging theoretical literature explore behavioral causes of bargaining failure, such as biased beliefs, commitments, and lack of common knowledge rationality. We propose to add to this literature, by formulating models and by performing systematic evaluation of competing hypotheses in controlled experiments. The first part of the project address bilateral bargaining. We focus on three causes of bargaining failure: biased beliefs; commitment; and lack of common knowledge rationality, and propose to address the following core hypotheses: * Are self-serving biases a major source of delay in alternating offer bargaining? * Do access to irreversible and cost free commitments produce breakdown in static bargaining situations? * Does rapidly decaying commitments produce efficient outcomes in dynamic bargaining situations? * Can strategic uncertainty explain observed delays in complete information alternating offer bargaining? The second part of the project vary the broader institutions in which bargaining takes place. Rational bargainers in complete information environments will in general not produce delay or breakdown. However, actual bargaining is conducted in a variety of broader institutional settings - such as markets with matching frictions and various forms of third party intervention. This may give rise to informational challenges that affects efficiency in bargaining. We focus on two aspects of the institutional environment: Institutionalized third party intervention and bargaining embedded in frictional markets. We propose to address the following core hypotheses. * How does third party intervention impact on delay and efficiency? * Do chains of bargaining complicate expectations and generate delay? * Can matching frictions in markets produce delay?

Publications from Cristin

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Funding scheme:

FRIHUMSAM-Fri prosj.st. hum og sam