On Majoritarian Bargaining with Incomplete Information

Abstract

[Abstract] This paper studies a finite horizon version of Baron and Ferejohn's (1989) majoritarian bargaining with incomplete information. Our devised model essentially blends Spence's signaling and the coalition formation of majoritarian bargaining.The main findings include: (i) oversized coalitions may arise in equilibrium and allowing for delay can be optimal for a proposer; (ii) whether being regarded as a high type makes a player better or worse off is not predetermined a priori but depends on two conflicting concerns: the "offer" concern à la Spence's signaling (the higher the type, the higher the offer) and the "coalition" concern in majoritarian bargaining (the higher the type, the lower the probability of being a member of the majoritarian coalition); (iii) players take action to distinguish themselves via delay; however, separating equilibria often fail to exist due to the incapability or unprofitability of exercising separation; (iv) separating equilibria, if they exist, can have a "no-envy" property, and pooling equilibria may coexist with the "least-cost" separating equilibrium even after refining the equilibrium set by the intuitive criterion; and (v) equilibria may be non-stationary and exhibit the novel feature that pooling proposals arise if a game lasts an even number of sessions, but not if there is an odd number of sessions.JEL classification: C78, D72, D82.