Cooperation under Uncertainty

Abstract: In this paper we analyze with game-theoretic tools economic situations where two players know that in a world of certainty cooperation would make both players better off compared to a situation of non-cooperation, i.e. the sum of payoffs in case of non-cooperation is strictly less than the surplus emerging from cooperation. In case of complete information cooperation will always occur, but as we show, in case of incomplete information non-cooperation may be an equilibrium outcome - despite of gains from trade. We characterize in a simple bargaining framework the two pooling and the three separating equilibria in terms of prior probabilities. Furthermore we characterize implied rent payments and the influence of bargaining power on the division of the surplus.;