Time-Inconsistent Bargaining and Cross-Commitments

The paper studies bargaining games involving players with present-biased preferences. shows that the relative timing of rewards and costs will determine whether players’ present-bias affect outcomes. In cases where agree to a bargain in period 1 experience all payoffs 2, act time-consistent fashion. When time-inconsistent incur immediate produce delayed rewards, they have an incentive procrastinate. On other hand, when receive costs, incentives bargains too soon inefficient bargains. awareness their own player’s preferences engage repeated bargaining. A naïve player who engages suffer welfare losses. We show can also create spillover losses for players. is counterparty-naïve about be higher than those incurred by player. As result, counterparty-sophisticated use cross-commitment devices reduce likelihood cross commitment target dominate cross-commitments payoffs. Finally, lead delays agreeing exiting relationships.