Bargaining under liquidity constraints: unified strategic foundations of the Nash and Kalai solutions (Q2211488)

The article is a natural continuation of the issue -- Perfect equilibrium in a bargaining model [\textit{A. Rubinstein}, Econometrica 50, 97--109 (1982; Zbl 0474.90092)]. The authors constructed a game according to which a buyer who is subject to a liquidity constraint and a seller bargain over bundles of potentially different sizes sequentially according to a Rubinstein alternating-offer game. The proposed game implements the Nash solution [\textit{J. F. Nash jun.}, Econometrica 18, 155--162 (1950; Zbl 1202.91122)] if \(N = 1\) and the Kalai solution [\textit{E. Kalai}, Econometrica 45, 1623--1630 (1977; Zbl 0371.90135)] if \(N = +\infty\) and bundle sizes are infinitesimal. If \(N\) is set by one player ex ante, the buyer chooses \(N = 1\) while the seller chooses \(N = +\infty\). The authors also endogenize the buyer's payment capacity and showed the liquidity constraint binds for all \(N =<\, +\infty\) even when liquidity is costless. The results are very interesting and more importantly open up new ways to reconsider the problems of negotiating with divisible goods and assets.