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Bargaining over a Common Good with Private Information

Therese Lindahl and Magnus Johannesson Scand. J. of Economics 111(3), 547–565, 2009

Abstract:

Consider two agents who make sequential claims on a common good, receiving their respective claims only if these are compatible. We let the first mover be privately informed about the size of the good. Conventional theory predicts multiple equilibria, and the intuitive criterion predicts that the first player claims the entire good. Our experimental results reject the intuitive criterion. Private information reduces the claim and the profit of the first mover. However, we cannot reject that the subjects play according to a perfect Bayesian equilibrium (PBE). Most subjects play according to a PBE, and almost all successful coordination occurs at the even split.

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Keywords: Asymmetric information,coordination,focal point,fairness

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