Gonzalo Olcina

Commitment and Choice of Partner in a Negotiation with a Deadline

This paper analyses the effects of partially revocable endogenous commitments of a seller in a negotiation with a deadline. In particular, we examine when commitment is a source of strength, a source of inefficiency and when it does not affect the bargaining outcome at all. We show that when commitment possesses a minimum amount of irrevocability this crucially determines the bargaining outcome. In the bilateral bargaining case, commitment becomes a source of inefficiency since it causes a deadline effect. In the choice of partner framework, however, the deadline effect disappears and there is an immediate agreement and, moreover, commitment becomes a source of strength since it increases the sellers equilibrium payoff by triggering off competition between the buyers.

FORWARD INDUCTION IN GAMES WITH AN OUTSIDE OPTION

We provide eductive foundations for the concept of forward induction, in the class of games with an outside option. The formulation presented tries to capture in a static notion the rest point of an introspective process, achievable from some restricted preliminary beliefs. The former requisite is met by requiring the rest point to be a Nash equilibrium that yields a higher payoff than the outside option. With respect to the beliefs, we propose the Incentive Dominance Criterion. Players should consider one action more likely than another whenever the former is better than getting the outside option for more conjectures over his rivals actions. We apply this model to the case where the subgame is a coordination game with a conflict between payoff dominance and risk dominance. Our results provide support for dominance solvability, but not for Van Dammes notion of forward induction. We show how the forward induction logic helps to select the Pareto dominant equilibrium. This is the case whenever player 1s act of giving up the outside option reverses the incentive dominance relations among 1s pure actions in the subgame.

Commitment and strikes in wage bargaining

Abstract This paper analyzes the long-run strategic relationship between a firm and a union as a repeated bargaining game, where there is incomplete information on the players motivation on both sides and each party has a fall-back position. The firm and the union will engage in a reputation-building activity, that will produce a limited number of strikes over time. The bargainer that succeeds in building up a reputation for toughness and obtains a favorable payoff in the long-run is, either the more patient (or alternatively the more centralized), or the party with a higher initial probability of stubbornness, or the party with a smaller fall-back position. Our model also offers predictions on the dependence of strike incidence over time on several parameters.

The dynamics of personal norms and the determinants of cultural homogeneity

This article studies the emergence of cultural homogeneity in personal norms when the behavior of heterogeneous individuals is driven both by economic incentives and by personal norms. Agents participate in a team production game by choosing their level of costly effort. Norms evolve along the life cycle of the individuals according to two psychological forces: cognitive dissonance or consistency and informational conformity. The model sheds light on how primitive economic and behavioral parameters such as the distribution of skills, the income distribution, and the levels of materialism, conformism, and consistency in the group determine the long-run culture and its degree of cultural homogeneity.

A note on beliefs formation in signalling games

Abstract We present a new criterion, called incentive dominance, for belief formation in signalling games, which subsumes refinements criteria such as equilibrium dominance and divinity. It captures the principle of forward induction through explicitly modelling the players thought process when forming preliminary beliefs.

The erosion of personal norms and cognitive dissonance

ABSTRACT In this article, we study how personal norms and behaviour interact and evolve when agents try to reduce cognitive dissonance, and how this dynamic relates to Nash equilibrium. We find that in long run, agents play, and norms prescribe, Nash equilibrium in material payoffs (in the absence of norms). Our model captures two main facts: (i) norms erode along the play of the game; (ii) the erosion of norms depends on the set of possible economic choices, so that the policy maker can potentially influence them.

BARGAINING WITH COMMITMENT UNDER AN UNCERTAIN DEADLINE

We consider an infinite horizon bargaining game in which a deadline can arise with positive probability and where players possess an endogenous commitment device. We show that for any truncation of the game, the equilibrium agreement can only take place if the deadline arises within this finite horizon. Since the deadline is an uncertain event, the equilibrium exhibits agreements which are delayed with positive probability.