Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2018

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Bargaining with Rational Inattention

Doron Ravid*

Date: 2018-05-11 2:30 pm – 3:00 pm
Last modified: 2018-04-27

Abstract


A seller makes repeated offers to a rationally inattentive buyer (Sims, 2003). The seller knows the product's quality, which is random. The buyer needs to pay attention both to the product's quality and to the seller's offers. I show that there is delay in trade that decreases in product quality, and that the buyer obtains a significant surplus, which remains significant in a frequent-offers environment with vanishing attention costs. Finally, I show that revealing the product's quality to the buyer reduces both the buyer's surplus and overall efficiency. 

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