Sequential negotiations with loss-averse buyers

Rosato, A

Sequential negotiations with loss-averse buyers

Rosato, A

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Publication Type:: Journal Article
Citation:: European Economic Review, 2017, 91 pp. 290 - 304
Issue Date:: 2017-01-01

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Field	Value	Language
dc.contributor.author	Rosato, A https://orcid.org/0000-0003-1789-0225	en_US
dc.date.issued	2017-01-01	en_US
dc.identifier.citation	European Economic Review, 2017, 91 pp. 290 - 304	en_US
dc.identifier.issn	0014-2921	en_US
dc.identifier.uri	http://hdl.handle.net/10453/124432
dc.description.abstract	© 2016 Elsevier B.V. This paper analyzes sequential negotiations with exogenous breakdown risk between a risk-neutral seller and a loss-averse buyer who is privately informed about his valuation. I show that, compared to the risk-neutral benchmark, loss aversion on the buyer's side softens the rent-efficiency trade-off for the seller. The reason is that the higher the buyer's valuation is, the more he has to lose by rejecting the seller's offer. Thus, in equilibrium the seller's profits and overall efficiency are both higher than in the risk-neutral case. Moreover, I also show that loss aversion has a redistributive effect by increasing the equilibrium payoff of some low-valuation buyers and decreasing that of high-valuation ones.	en_US
dc.relation.ispartof	European Economic Review	en_US
dc.relation.isbasedon	10.1016/j.euroecorev.2016.11.003	en_US
dc.subject.classification	Economics	en_US
dc.title	Sequential negotiations with loss-averse buyers	en_US
dc.type	Journal Article
utslib.citation.volume	91	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	14 Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	closed_access
pubs.publication-status	Published	en_US
pubs.volume	91	en_US

Abstract:

© 2016 Elsevier B.V. This paper analyzes sequential negotiations with exogenous breakdown risk between a risk-neutral seller and a loss-averse buyer who is privately informed about his valuation. I show that, compared to the risk-neutral benchmark, loss aversion on the buyer's side softens the rent-efficiency trade-off for the seller. The reason is that the higher the buyer's valuation is, the more he has to lose by rejecting the seller's offer. Thus, in equilibrium the seller's profits and overall efficiency are both higher than in the risk-neutral case. Moreover, I also show that loss aversion has a redistributive effect by increasing the equilibrium payoff of some low-valuation buyers and decreasing that of high-valuation ones.

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http://hdl.handle.net/10453/124432