Optimal Imperfect Commitments in a Negotiation with a Deadline

Abstract

One major finding of the bargaining literature is that the more irrevocable a commitment is, the better for the committed player. One notable exception is Fershtman and Seidmann (1993) bilateral negotiation where the commitment not only does not improve the committed player's payoff but also it results in inefficient delays. In this paper we relax two assumptions of the bargaining literature related to the uncertainty and irrevocability of commitments. We allow players not only to possess imperfect commitments but also to choose the degree of imperfection of their commitment. When these assumptions are incorporated in Fershtman and Seidmann (1993)'s model, we obtain that, on the one hand, the delays disappear and an immediate agreement is reached. On the other hand, the commitment becomes effective, that is, it improves the payoff of the committed player.