Agenda Formation in Issue-by-Issue Bargaining Games
Paper number: 00/01
Paper date: February 2000
Paper Category: Working Paper
This paper investigates the agenda formation problem by means of two-player two-cake sequential bargaining models. Players differ not only in their time preferences but also for their cake valuations; moreover they face a risk of breakdown in the negotiation process. The main model is characterised by risk of breakdown after the agreement on the first issue, transmission of delays between the negotiations over the two issues, and alternating offer (both after a rejection and an acceptance). Alternative models also are analysed to highlight the complex interplay of forces in the bargaining process over different issues. We characterise the unique subgame perfect equilibrium and focus on the Pareto optimal agenda. The main result is that if there is consensus over the importance of the issues, it is Pareto optimal to discuss the most important issue first. However, if there is a controversial issue, it should be discussed at the end. Finally, this framework allows to analyse the problem of issue-linkages.