Compromise is key in infinitely repeated bargaining with an Evergreen Clause

Abstract This paper considers a new model of repeated bargaining over a flow. In Rubinstein (1982), once an agreement is reached the game ends. Here, the game continues and the agreement can be re-negotiated at cost in any period. It is shown that, with finite memory, there is a unique equilibrium which converges to the Nash Bargaining Solution in the limit. The novel equilibrium feature is the search for compromise; players reject agreements that give them “too much”. Whilst rejection and delays are never observed on the equilibrium path in a stationary environment, they are observed in a non-stationary one. A folk theorem emerges with infinite memory.