Bargaining in a Long-Term Relationship with Endogenous Termination
Abstract This paper studies a dynamic game of perfect information, in which two players start bargaining over the partition of a new cake each time agreement is struck over the partition of an existing cake. Negotiations over the partition of each cake take place according to Rubinstein′s alternating-offers model. The parameters of the model are the players′ rates of time preference, the time interval between two consecutive offers, and the lag time between the end of one set of negotiations and the start of the next. We characterize the unique stationary perfect equilibrium and investigate the possible existence of non-stationary equilibria. Journal of Economic Literature Classification Numbers: C73, C78.