Communication in multilateral bargaining

One of the most robust phenomena in the experimental literature on multilateral bargaining is the failure of proposers to extract equilibrium rents. However, all previous experiments have overlooked the fact that outside the lab committee members are allowed to and do engage in sometimes intense communication processes prior to voting on a proposal. We conduct an experimental test of the Baron-Ferejohn model in which we allow committee members to engage in unrestricted cheap-talk communication before a proposal is submitted. We find that proposers extract a significantly higher share of resources when communication is allowed. Communication increases proposer power through two channels. First, it mitigates the uncertainty surrounding the amount a coalition member is willing to accept. Second, it allows potential coalition members to compete for a place in the coalition by lowering this stated price. ∗The authors would like to acknowledge generous support from SSHRC IDG grant #F12-00384 as well as the Gordon and Betty Moore Foundation Grant GBMF#1158: Experimentation with Large, Diverse and Interconnected Socio-Economic System. We would also like to thank Ernesto Dal Bo, Pedro Dal Bo, Timothy Feddersen, Guillaume Frechette, Alessandro Lizerri, John Ledyard, Rebecca Morton, Muriel Niederle, Salvatore Nunnari, Erkut Ozbay, Thomas Palfrey, Al Roth, Emanuel Vespa, Alistair Wilson, Leeat Yariv, the seminar participants at Caltech, UBC, Stanford and UCSD, the conference participants at ESA (Tucson and New York), SITE, and Public Choice for helpful comments and discussions. †California Institute of Technology, MC 228-77, Pasadena, CA 91125 USA. [email protected] ‡Corresponding author: University of British Columbia, 2053 Main Mall, Vancouver BC V6T1Z2, Canada. [email protected], +1 (778) 986-9473.