We thank Christian Hellwig for first suggesting a continuous-time framework; Jacques Cremer, Hari Govindan, Ken Hendricks, David Levine, Mike Peters, and Colin Stewart for their comments; and Michael Xiao for his research assistance. A co-editor and two anonymous referees made useful suggestions that allowed us to improve the paper. This research project received financial support from the Social Sciences and Humanities Research Council of Canada (Grants 410-2008-1032 and 410-2010-1482) and from the Research Grants Council of Hong Kong (Project HKU7515/08H).
Optimal deadlines for agreements
Version of Record online: 18 MAY 2012
Copyright © 2012 Ettore Damiano, Li, Hao, and Wing Suen
Volume 7, Issue 2, pages 357–393, May 2012
How to Cite
Damiano, E., Li, H. and Suen, W. (2012), Optimal deadlines for agreements. Theoretical Economics, 7: 357–393. doi: 10.3982/TE847
- Issue online: 18 MAY 2012
- Version of Record online: 18 MAY 2012
- Submitted 2010-8-12. Final version accepted 2011-7-26. Available online 2011-7-26.
- Repeated proposals;
- war of attrition;
- interdependent values
Costly delay in negotiations can induce the negotiating parties to be more forthcoming with their information and improve the quality of the collective decision. Imposing a deadline may result in stalling, in which players at some point stop making concessions but switch back to conceding at the end, or a deadlock, in which concessions end permanently. Extending the deadline hurts the players in the first case, but is beneficial in the second. When the initial conflict between the negotiating parties is intermediate, the optimal deadline is positive and finite, and is characterized by the shortest time that allows efficient information aggregation in equilibrium.