COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1760 The Role of Commitment in Bilateral Trade Dino Gerardi, Johannes Hörner and Lucas Maestri May 2010 We examine the buyer-seller problem under different levels of
commitment. The seller is informed of the quality of the good, which affects both his cost
and the buyer’s valuation, but the buyer is not. We characterize the allocations that
can be achieved through mechanisms in which, unlike with full commitment, the buyer has
the option to "walk away" after observing a given offer. We further characterize
the equilibrium payoffs that can be achieved in the bargaining game in which the seller
makes all the offers, as the discount factor goes to one. This allows us to identify how
different levels of commitment affect outcomes, and which constraints, if any, preclude
efficiency. |
