All in good time

Why is issue-by-issue bargaining a common phenomenon, even though it disallows the beneficial trade-offs across issues that are possible when negotiating a global solution? We show that under asymmetric information, issue-by-issue bargaining has two attractive features. First, it avoids bundling a good deal on one issue with a bad deal on another issue, when the lack of gains to agreement on the latter is not a priori common knowledge. Second, it avoids the imposition of the asymmetric information inefficiency of “harder” issues on issues which turn to be “easier” to solve. That’s why when the agenda is not imposed on the parties but is rather left for them to determine when negotiating, they may very well opt for issue-by-issue bargaining. We demonstrate this in a natural game where bargainers communicate, whenever they choose to do so, their willingness to discuss or make offers either on one of the issues or on a bundle of issues.

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