Agendas in Multi-Issue Bargaining : When to Sweat the Small Stu ff ∗

In practice, negotiators deal with numerous issues by ordering them in an agenda, yet in theory separating components of a decision can preclude Pareto-improving tradeoffs. Why then do negotiators address issues separately, rather than all at once? Moreover, what determines the order issues get addressed, and what effect does it have on the final agreement? I characterize an extension of Rubinstein bargaining to the multiple-issue setting and show it has a simple and unique equilibrium agenda. Under this equilibrium issue-by-issue bargaining can ameliorate ex-ante bargaining risk, leading to Pareto improvements. Issue bargaining can also allow bargainers to make implicit, if not explicit, tradeoffs between issues, and can dramatically change a negotiation’s final agreement, with large distributional consequences. My results suggest that issue-by-issue bargaining may be socially optimal and preferred by one or both parties if players are sufficiently asymmetric, or if bargaining frictions are large. ∗I am extremely gratefully to Dan Benjamin, Drew Fudenberg, Gabor Futo, Matthew Gentzkow, Jerry Green, Emir Kamenica, David Laibson, Markus Möbius, Al Roth and workshop participants at Harvard University for numerous insightful comments on this and previous drafts. †mkchen@fas.harvard.edu, www.fas.harvard.edu/~mkchen