Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia

ABSTRACT

Existing theories typically focus on asymmetric information to explain delays in bargaining. This is not always appropriate, particularly when the parties are in a long-term relationship. This paper examines the incentive to delay agreement (or innovation) when: there are multiple bargaining periods; previous outcomes affect the subsequent distribution of surplus; contracts are incomplete; and the parties are wealth constrained. Current agreements affect parties' claim on future surplus either by altering their default payoffs (historical bargaining/contractual positions) or by changing their relative contemporaneous bargaining strengths. Delay will occur at different times depending on which assumption applies. If agreement reduces the future default payoffs of a party, delay is more likely when expected future surplus is lower. If innovation reduces current bargaining power, however, a party is more likely to delay agreement when expected future surplus is larger. It is also argued that a party with a narrowly defined set of interests, like a craft union, is more likely to delay than a party with broader interests.