This paper examines a bargaining model with asymmetric information in which the private valuations of the two bargaining agents are correlated. It shows that equilibria in such models typically exhibit a significant probability of a significant delay to agreement. The paper characterizes the unique perfect Bayesian equilibrium to the game in which an uninformed buyer makes offers to a privately informed seller. It also shows, by example, that in this framework bargainers may rationally break off negotiations even in the presence of commonly known gains from trade.
Bargaining With Common ValuesDaniel R. Vincent ,
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Journal of Economic Theory