OPTION VALUES AND BARGAINING DELAYS

We consider a version of Rubinstein bargaining in which both parties possess symmetric information about an asset's value, but the value may change over time. When players can wait to learn new information before responding to a given offer, each offer carries an implicit option value. When the players are patient, it is optimal for them to make conservative offers to minimize the option value, but such offers are rejected when the value of the asset increases. Multiple equilibrium outcomes also support the construction of further equilibria in which the players wait many periods before making a serious offer. Unlike other complete information models, waiting in our model is built from stationary asymmetric equilibria. In a limiting case, waiting can become arbitrarily long and the payoffs arbitrarily smalll. (C) 1994 Academic Press, Inc.