A Continuous-Time Model of Multilateral Bargaining∗

We propose a finite-horizon continuous-time framework for coalitional bargaining that has the following features: (i) Expected payoffs in Markov-perfect equilibrium (MPE) are unique, generating sharp predictions and facilitating comparative statics investigations; (ii) MPE are the only subgame-perfect Nash equilibria (SPNE) of the model that can be approximated by SPNE of nearby discrete-time bargaining models satisfying a genericity condition, providing justification for focusing on MPE in our model; (iii) The model is relatively tractable analytically. We investigate MPE payoffs as the time horizon goes to infinity. In convex games, we connect these limit payoffs to the core of the characteristic function underlying the bargaining game. ∗We would like to thank Jeremy Bulow, Drew Fudenberg, Vijay Krishna, Eric Maskin, Maria Montero, Philip Reny, Larry Samuelson, József Sákovics, Muhamet Yildiz, and seminar participants at Princeton University, IAS at Princeton, Harvard University, Chicago University, University of Edinburgh, University of Nottingham, University of Essex, the 2008 AEA meetings, the John Nash 2008 conference, and the SED 2008 Conference on Economic Design for useful comments, and Niels Joaquin for valuable research assistance. †Department of Economics, Harvard University, Cambridge, MA 02138, [email protected] ‡Department of Economics, Harvard University, Cambridge, MA 02138, [email protected]