Selective acceptance and inefficiency in a two-issue complete information bargaining game

This paper explores the effects of a "selective acceptance" rule on the out come of two-issue negotiations. The alternating-offer game introduced here allows for the possibility that settlement may be reached on one issue whil e negotiation continues about the other. This model captures features of la ws that art: generally believed to increase efficiency. The analysis shows that if one issue is indivisible. there are inefficient subgame perfect equ ilibria with no Pareto-improving alternative equilibria. With opposing valu ations, rapid communication guarantees inefficiency. These are unique examp les of this strong form of inefficiency in an alternating-offer bargaining game with complete (and perfect) information. Journal of Economic Literatur e Classification Numbers: C72 J30. (C) 2000 Academic Press.