Preemption or Wait and See? Endogenous Timing in Bargaining

Abstract

"Suppose two parties have to share a surplus of random size. Each of the two can either commit to a demand prior to the realization of the surplus, or wait until the surplus was publicly observed. Early commitments carry the risk that negotiations break down, because the surplus turns out too small. Still, when uncertainty is sufficiently small, commitment is a dominant choice. For more diffuse priors the equilibrium outcome depends on the distribution function and on risk aversion."