Bargaining with Deadlines and Private Information VERY PRELIMINARY AND INCOMPLETE

Many negotiations have a preset deadline by which an agreement must be reached. For example, with a known trial date looming ahead, parties engage in pretrial negotiations. Before international summits, countries bargain over the terms of the accords to be signed at the summit. Broadcasters selling advertising space for some live event have until the event takes place to reach an agreement with the advertisers. Negotiations to renew labor contracts have until the expiration date of the current contract or the pre-set strike date if conflicts are to be avoided. Financial considerations might also act as an effective deadline. Countries that have large debt repayments ahead of them bargain with international agencies such as the IMF for financing that would help them avoid default.1 Private companies also face refinancing deadlines or deadlines to obtain financing in order to be able to invest in a given venture. Finally, negotiations can be affected by regulatory deadlines. For example, to take advantage of the home buyer credit program, buyers and sellers of homes had to close their transactions by a given deadline to qualify for the subsidy. Both the experimental literature and the empirical evidence have documented that a large fraction of the agreements are reached in the "eleventh hour". Cramton and Tracy (1992) study a sample of 5002 labor contract negotiations involving large bargaining units they claim a "clear ‘deadline effect’exists in the data" since 31% of agreements are reached on the deadline.2 So why is it that parties only reach an agreement on the morning of the trial date (see Spier 1992) or in the wee hours of the night before the labor contract expires? ∗Fuchs: Haas School of Business,University of California Berkeley (e-mail: [email protected]). Skrzypacz: Stanford University, Graduate School of Business, 518 Memorial Way, Stanford, CA 94305 (e-mail: [email protected]). 1For example, the current negotiations between Greece the EU and IMF are carried under the looming refinancing needs due to loans maturing. " Greece must refinance 54 billion euros in debt in 2010, with a crunch in the second quarter as more than 20 billion euros becomes due." http://www.reuters.com/article/idUSTRE63F2ZR20100416 2They interpret agreements reached even a day after the contract expiration as reached "on" the deadline.