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We consider the problem of two agents bargaining over the relative price of two goods they are endowed with. They alternatingly exchange price offers and the utilities are discounted. The recipient of an offer can either accept it and choose the quantities to be traded, or reject and counter- offer a different relative price. We study the set of equilibria as discounting frictions vanish and find that: (1) any generic economy has bargaining equilibria that are inefficient even as discounting frictions vanish; and (2) a bargaining equilibrium converging to a Walrasian outcome exists for some robust types of convergence of the discount factors, but it does not exist for other equally robust convergences. Moreover, in case there exists a bargaining equilibrium converging to a Walrasian outcome, then there is necessarily a multiplicity of them. As a consequence, unlike in Rubinstein’s (1982) alternating-offer bargaining, the equilibrium outcome of this set-up is not generically unique and efficient. Download Paper
A key question concerning social norms is whether norms, that are bad for its members, can survive. This paper proposes a theory of non-market interactions within organizations, in the presence of competition between them. The main finding is that in equilibrium, organizations differ, and that they have norms or corporate cultures that can be Pareto ranked. With non contractible effort, agents cannot credibly commit to cooperation when all outside options are equally good. Price competition naturally gives rise to authority relations within firms: seniors extract higher rents than entering juniors. However, authority is limited by competition and does not eradicate the stratification of norms. Download Paper
This paper considers equilibrium directed search with a finite number of heterogeneous workers and firms, where firms compete in direct mechanisms. Unlike previous findings, Nash equilibrium here does solve the problem of coordination failure. Restricting the match value function to be supermodular, and that firms use truthful strategies also imply positive assortative matching and decentralized trading prices which are consistent with the stable (cooperative equilibrium) outcome. The equilibrium mechanism is not an auction. Instead, to attract better skilled workers, firms post a fixed wage rule and hire the most skilled applicant who applies. Download Paper