On the outside-option principle with one-sided options

摘要

This note examines a bargaining game in which a single player has an outside option that can be taken in any period of time. If the outside-option value is close to the efficient frontier, then there exist equilibria that contravene the "outside-option principle.'' In particular, the player with the outside option may receive significantly less than his/her equilibrium payoff in the game without it. An example of option-contract renegotiation is provided. (C) 2020 Elsevier B.V. All rights reserved.