Download Communication in Multilateral Bargaining

Communication in
Multilateral Bargaining
MARINA AGRANOV & CHLOE TERGIMAN (2013)
Context
US Senate Committee on Appropriations:
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Negotiation about the allocation of goverment funds (2016: >$1 trillion)
• Chair of committee is able to steer a disproportionate amount of funds into his own state
• Proposer power!
Baron-Ferejohn Model (1989)
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Budget X
N (odd) members
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Proposer: proposes budget
Voters:
Accept -> receive part of funds
Reject -> new bargaining
Next Round (if majority rejects):
• New proposer chosen
• Fund gets discounted (0<δ<1)
Proposer
Budget
Proposer
Voter 1
Voter 2
Voter 3
Voter 4
Theoretical Prediction
N=5, X=250, δ=0.8
Proposer offers: x1, x2, x3, x4, x5
SSPE: x1: 170, x2 = x3 = 40, x4 = x5 = 0
=> 1,2,3: Yea
4,5: Nay
Voters 2,3 accept 40:
• 1/5 chance of becoming proposer in next round
• Discounted budget: 0.8*250 = 200
• => 0.2*200 = 40
SSPE not reached in lab -> No communication allowed
Experimental Design
As before: N=5, X=250, δ=0.8, 15 Sessions
BASELINE Treatment: No Communication
BASELINE LONG Treatment: No Communication, 30 sessions -> effect of learning
CHAT Treatment: Communication via chat tool
Assigned ID numbers -> change after every round -> control for reputation effects
50 tokens = $1
Results 1/2
1. Proposer extracts a significantly higher
share of budget when communication is
possible!
2. Repetition is not a substitute for
communication!
Results 2/2
3. Communication reduces uncertainty for the
proposer!
◦ Heterogeneity in reservation prices of non-proposers
4. Communication enables competition to be
included into coalition!
◦ Non-proposers lower reservation prices over time
Conclusion
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Possibility of unrestricted communication reconciles empirics with theory
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Proposer can extract higher rents
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Proposer can inquire about voters reservation prices
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Reduction in uncertainty
Enabling of competition between voters
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Reduction in prices