Theoretical Economics 7 (2012), 357–393
Optimal deadlines for agreements
Ettore Damiano, Hao Li, Wing Suen
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 would allow efficient information aggregation in equilibrium.
Keywords: Repeated proposals, war of attrition, interdependent values
JEL classification: C72, C78, D74, D82, D83
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