Non-Binding Sequential Exchange between Discounting Agents

When exchange is sequential, and no binding agreements can be written, the agent acting first is exposed to the possibility that, even if he honors the agreement, his trading partner may subsequently choose not to do so. The primary focus of the current analysis is whether trade can successfully occur in such environments. Exchange will successfully occur so long as there are sufficiently large gains from trade for the agent acting second. As a result, the agent acting first may be better off with less relative bargaining power. The possibility of facilitating exchange through the use of an escrow service is considered. Conditions are determined under which the agent acting first will employ such a service in order to ensure successful exchange (as opposed to ensuring successful exchange through the disposal of his own relative bargaining advantage). JEL classification: C70, D40, L14.