SIMULTANEOUS OFFERS AND THE INEFFICIENCY OF BARGAINING - A 2-PERIOD EXAMPLE

It is shown that the Pareto optimal outcomes in a two period simultaneous move bargaining model violate forwards induction rationality when the players are sufficiently patient. This bargaining model describes a situation where a principal is represented by an agent whose flexibility is restricted. Hence, a bargaining process with such agents can create costly delays. The result also provides another example of the power of forwards induction and stability. © 1990.