When an economic exchange requires agreement by multiple independent parties, the potential exists for an individual to strategically delay agreement in an attempt to capture a greater share of the surplus created by the exchange. This "holdout problem" is a common feature of the land-assembly literature because development frequently requires the assembly of multiple parcels of land. We use experimental methods to examine holdout behavior in a laboratory bargaining game that involves multi-person groups, complementary exchanges, and holdout externalities. The results of six treatments that vary the bargaining institution, number of bargaining periods, and cost of delay demonstrate that holdout is common across institutions and is, on average, a payoff-improving strategy for responders. Both proposers and responders take a more aggressive initial bargaining stance in multi-period bargaining treatments relative to single-period treatments, but take a less aggressive bargaining stance when delay is costly. Nearly all exchanges eventually occur in our multi-period treatments, leading to higher overall efficiency relative to the single-period treatments, both with and without delay costs. [excerpt]
This is the publisher's version of the work. This publication appears in Gettysburg College's institutional repository by permission of the copyright owner for personal use, not for redistribution.
Cadigan, John J., Pamela Schmitt, Robert Shupp and Kurtis Swope. "An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game." Southern Economic Journal 76.2 (October 2009), 444-457.
Required Publisher's Statement
Original version is available from the publisher at: http://journal.southerneconomic.org/doi/abs/10.4284/sej.2009.76.2.444