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Reputation and repeated bargaining with a third party
Reports NRF is supported by Research Projects( Reputation and repeated bargaining with a third party | 2009 Year | Jihong Lee(서울대학교) ) data is submitted to the NRF Project Results
Researcher who has been awarded a research grant by Humanities and Social Studies Support Program of NRF has to submit an end product within 6 months(* depend on the form of business)
  • Researchers have entered the information directly to the NRF of Korea research support system
Project Number B00117
Year(selected) 2009 Year
the present condition of Project 종료
State of proposition 재단승인
Completion Date 2011년 03월 28일
Year type 결과보고
Year(final report) 2011년
Research Summary
  • Korean
  • 본 연구는 불완전 정보 하의 반복적 협상 게임에서 협상 결렬시 제3자의 불확실한 결정하에 협상 주체들(players)의 보상(payoff)가 정해진다고 가정하고, 이러한 반복적 게임에서 균형(Markov Perfect Bayesian equilibrium)을 도출해 내고 분석한다. 본 연구의 핵심적인 결과는 도출해낸 균형에서 비대칭적인 정보를 소유한 협상 주체가 전략적으로 협상 결렬을 유도하여 장기적으로 협상 결과가 자신에게 유리한 방향으로 만들 수 있다는 것이다. 또한 이러한 균형이 특정 변수(paremeter)가 변할 때 어떠한 형태로 바뀌는 분석(comparative static)도 함께 하였다.
  • English
  • Many real world negotiations take place in the shadow of a third party, such as an expert, an arbitrator or even a court. Consider, for example, a firm in disputes with its employees or customers regarding wage increase or damage compensation. These disputes often involve repeated interaction between a single privately informed long-run player and a sequence of short-run players. The recent high-profile litigations surrounding Merck, a pharmaceutical firm, offer an interesting case in point. Merck refused to settle and contested every case in court. After losing the first case with a compensation verdict of \$253
    million in 2005, it continued to fight in court over the following two years. After winning most of them, the firm ended up settling
    further 27,000 cases out of court for $4.85 billion in total, an amount far smaller than experts predicted at the beginning (Source: New York Times, http://www.nytimes.com/2007/11/09/business/09merck.html).

    In these examples, the bargainers obtain random outside options ruled by a third party when they fail to reach an agreement. Moreover, the outside options represent not merely a disagreement point in a repeated setup; they partially reveal the informed party's private information. Our goal is to explore how this linkage between outside options and incomplete information determines bargaining strategies and outcomes, and to provide a useful analytical tool to study a variety of other related applications.

    We study repeated bargaining between a privately informed long-run player and a sequence of short-run players in discrete time. In each period, a disagreement invokes outside options ruled by an imperfect yet unbiased third party. The payoff-relevant outside options also partially reveal private information held by the long-run player. The information externality of outside options significantly affects the players' bargaining postures in our repeated setting. Under natural assumptions, we characterize the interaction of outside options and reputation effects as a modified gambler's ruin process, and explicitly
    construct the generically unique Markov perfect equilibrium. The gambler's ruin technique enables a sharp characterization of the equilibrium payoff and behavior. Our novel analytical tools can be applied to other repeated interactions with informative outside options.
Research result report
  • Abstract
  • We study repeated bargaining between a privately informed long-run player and a sequence of short-run players in discrete time. In each period, a disagreement invokes outside options ruled by an imperfect yet unbiased third party. The payoff-relevant outside options also partially reveal private information held by the long-run player. The information externality of outside options significantly affects the players' bargaining postures in our repeated setting. Under natural assumptions, we characterize the interaction of outside options and reputation effects as a modified gambler's ruin process, and explicitly
    construct the generically unique Markov perfect equilibrium. The gambler's ruin technique enables a sharp characterization of the equilibrium payoff and behavior. Our novel analytical tools can be applied to other repeated interactions with informative outside options.
  • Research result and Utilization method
  • The authors are, above all, aiming for publication at a top economics journal. We also expect several follow-up research papers from the present project.
  • Index terms
  • bargaining, outside option, third party, reputation, gambler's ruin
  • List of digital content of this reports
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