Information and Timing in Repeated Bargaining∗

We study a repeated version of the Myerson-Satterthwaite bilateral bargaining problem with serially correlated types. We show that effi cient, unsubsidized, and individually rational trade is possible if and only if the expected dynamic virtual surplus from the effi cient allocation is positive. Using this condition, we study the effects of discounting, frequency of interaction and persistence of private information on equilibrium outcomes. When types follow stationary Gaussian Markov processes, this yields an anti-folk theorem: Effi cient and inidividually rational trade requires a subsidy equal to the first-best surplus for any degree of mean-reversion and any discount rate. For a “renewal model” we characterize in closed form the condition between the discount rate, frequency of interaction, and persistence needed for the expected virtual surplus to be positive. We also solve for the second-best mechanism in the Gaussian model. Preliminary and incomplete draft prepared for Yale Theory lunch on Oct 11, 2011.