School of Economics and Finance

No. 401: Joint Outside Options

Paola Manzini , Queen Mary and Westfield College, University of London
Marco Mariotti , University of Exeter

February 1, 1999

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Several contractual situations are such that the parties may 'step out' of negotiations and take up outside opportunities only if there is mutual consent to do so. Examples include employer-employee negotiations, divorce and inheritance procedures, and arbitration. To analyse such cases we develop the general concept of a 'joint outside option' and study its effect in the standard bargaining game. Examples from the economics of divorce and theory of the firm are considered in some depth.

J.E.L classification codes: C78