Long-run Negotiations withDynamic Accumulation

Abstract

TMany negotiations are characterised by dynamic accumulation: current agreements affect future bargaining possibilities. We study such situations by using repeated bargaining games in which two parties can decide how much to invest and how to share the residual surplus for their own consumption. We show that there is a unique (stationary) Markov Perfect Equilibrium characterised by immediate agreement. Moreover, in equilibrium a relatively more patient party invests more than his opponent. However, being more patient can make a player worse off. In addition, we derive the conditions under which we obtain an efficient investment path. Our results are robust to different bargaining procedures, different rates of time preference and elasticities of substitution.exports; control function; GMM; matching; TFP; sample selection