Abstract
We analyze a bargaining situation in which preferences evolve over time and the previous agreement becomes the next status quo. The endogeneity of the status quo exacerbates the players’ conflict of interest: Players disagree more often than under exogenous status quo. This leads to inefficiencies and status quo inertia. Under certain conditions, the negotiations can come to a complete gridlock: Players never reach an agreement. Gridlock can occur between players with arbitrarily similar preferences, provided they are sufficiently patient. In legislative settings, our model predicts polarization and explains why legislators may fail to react promptly to economic shocks.
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