Tough negotiations: Bilateral bargaining with durable commitments

- We develop a model of bilateral bargaining with durable commitments.
- We show that it has a unique Markov Perfect equilibrium outcome.
- We characterize the extent of delay and the nature of agreement.
- We demonstrate how results change as we relax the model's assumptions.

We offer a tractable model of tough negotiations and delayed agreement. The setting is an infinite horizon bilateral bargaining game in which negotiators can make strategic commitments to durable offers. Commitments decay stochastically, but uncommitted negotiators can make new commitments. The game's unique Markov Perfect equilibrium outcome takes the form of a war of attrition: Negotiators initially commit to incompatible offers, but agreement occurs once a negotiator's commitment decays. If commitments decay more quickly, the terms of the agreement become more equal. In expectation, more patient, committed, and less risk averse negotiators obtain a larger fraction of the surplus.