Bargaining Frictions, Bargaining Procedures and Implied Costs in Multiple‐Issue Bargaining

Abstract

The paper explores how bargaining frictions and bargaining procedures interact to determine players’ bargaining costs in multiple‐issue bargaining settings. When bargaining frictions take the form of discounting and agreements are implemented as they are reached, issue‐by‐issue negotiation can generate bargaining costs different from those that occur if all issues are bargained simultaneously. These cost differences result in differences in allocations across bargaining procedures such that players disagree on the desired method of bargaining. Similar results hold for certain fixed‐cost bargaining friction specifications. This analysis provides a potential explanation of both agenda bargaining and incomplete contracts.