A Behavioral Model of Multilateral Bargaining and Holdout: Theory with Experimental Evidence

Abstract

Bilateral monopoly, land assembly, and unanimous-consent Coasian bargaining present interesting strategic questions because they involve division of an economic surplus without competition to temper bargaining demands. We present a behavioral bargaining model in which payoff-maximizing proposers make offers to divide a surplus with one or more responders who are assumed to behave either strategically, or sincerely according to a minimum acceptable offer rule. We characterize equilibrium proposer and responder decisions under various scenarios regarding the number and type of responders, the number of bargaining periods, and the cost of delay. The model predictions are consistent with data from laboratory experiments.