Why sunk costs matter for bargaining outcomes: An evolutionary approach (Q697929): Difference between revisions

Two parties bargain over their shares of a pie whose size is determined by one party's, say it 1, investment decision. The main result is that in all long-run outcomes the level of sunk costs is efficient and, under proper conditions, player 1's share of the efficient pie approximates the maximum of (i) the smallest share that induces efficient investment, even if player 1 expects to approximate the available pie from any inefficient investment: (ii) half of the efficient pie.