Disagreement and Authority

15 Pages Posted: 18 Oct 2007

See all articles by Tore Ellingsen

Tore Ellingsen

Stockholm School of Economics - Department of Economics; Norwegian School of Economics (NHH) - Department of Economics

Topi Miettinen

Hanken School of Economics - Helsinki Graduate School of Economics

Date Written: June 29, 2007

Abstract

Can two negotiators fail to agree when both the size of the surplus and the rationality of the negotiators are common knowledge? We show that the answer is affirmative. When the negotiators can make irrevocable commitments at a low but positive cost, the unique symmetric equilibrium entails disagreement with high probability. In the unique pair of pure strategy equilibria, one party gets all the surplus. Even though we impose no constraints on side-payments, efficient compromises are unattainable. A strongly asymmetric authority relationship is thus the only viable alternative to costly conflict.

Keywords: Authority, Bargaining, Commitment, Disagreement, Transaction Costs

JEL Classification: C72, C78

Suggested Citation

Ellingsen, Tore and Miettinen, Topi, Disagreement and Authority (June 29, 2007). Jena Economic Research Paper No. 2007-037, Available at SSRN: https://ssrn.com/abstract=1021186 or http://dx.doi.org/10.2139/ssrn.1021186

Tore Ellingsen (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9260 (Phone)
+46 8 31 3207 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Topi Miettinen

Hanken School of Economics - Helsinki Graduate School of Economics ( email )

Helsinki
Finland

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