Recursive Nash bargaining over a productive asset

We propose an equilibrium concept (the recursive Nash bargaining solution) that describes the outcome of repeated negotiations between two rational agents under the assumptions that the state of the economic system under consideration changes according to the actions of the players and that neither party can make binding commitments to future behavior. This equilibrium is dynamically consistent but typically not Pareto-efficient. As an application, we compute the recursive Nash bargaining solution in a model of two heterogeneous agents bargaining over the use of a productive asset with constant gross rate of return and study how the time-preference rates and the elasticities of substitution affect the solution. (c) 2005 Elsevier B.V. All rights reserved.