Optimal Deadlines for Agreements

ettore damiano, university of toronto
hao li, university of toronto
wing suen, university of hong kong

Abstract

We provide a welfare analysis of optimal deadline in a repeated negotiation game in which costly negotiations can produce information that improve the quality of the decision. We characterize equilibrium strategies and the evolution of beliefs in continuous time, and study how the length of the negotiation horizon affects players' behavior and welfare. We show that the optimal deadline is positive if only if the ex ante probability that the players disagree on the preferred decision is neither too high nor too low. When positive, the optimal deadline is finite, bounded away from zero, and increasing in the ex ante probability of disagreement.