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Title: The Negotiators Who Knew Too Much: Transaction Costs and Incomplete Information

Author(s): Patrick W. Schmitz

Publication Date: May 2016

Keyword(s): Bargaining, incomplete information, joint ownership, Property rights and transaction costs

Programme Area(s): Industrial Organization

Abstract: Two parties can at some future date 2 negotiate about whether or not to collaborate in order to generate a surplus. Yet, the negotiation stage will be reached only if at date 1 both parties pay their respective transaction costs. We show that the expected total surplus may be larger when at date 1 the parties do not yet know the size of the surplus that can be generated at date 2. Moreover, joint ownership can be optimal under incomplete information even when it would be suboptimal under complete information.

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Bibliographic Reference

Schmitz, P. 2016. 'The Negotiators Who Knew Too Much: Transaction Costs and Incomplete Information'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11276