Status Quo Bias in Bargaining: An Extension of the Myerson–Satterthwaite Theorem with an Application to the Coase Theorem
Authors: McKelvey R.D.1; Page T.2
Source: Journal of Economic Theory, Volume 107, Number 2, December 2002 , pp. 336-355(20)
Publisher: Academic Press
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Abstract:
We generalize the Myerson–Satterthwaite theorem to study inefficiencies in bilateral bargaining over a divisible good, with two-sided private information on the valuations. For concave quasi-linear preferences, the ex ante most efficient Bayes equilibrium of any mechanism always exhibits a bias toward the status quo. If utility functions are quadratic every Bayes equilibrium is ex post inefficient, with the expected amount of trade biased toward the disagreement point. In other words, for the class of preferences we study, there is a strategic advantage to property rights in the Coase bargaining setup in the presence of incomplete information. Journal of Economic Literature Classification Numbers: C78, D23, D62, D82. © 2002 Elsevier Science (USA).
Keywords: Coase theorem; Myerson–; Satterthwaite theorem; bargaining; property rights; externalities; private information.
Language: English
Document Type: Research article
DOI: 10.1006/jeth.2001.2954
Affiliations: 1: Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, California, 91125 2: Department of Economics, Brown University, Providence, Rhode Island, 02912
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