We study bilateral bargaining problems with an interested third party, the stakeholder, that enjoys benefits upon a bilateral agreement. To address the strategic implications of stakeholders over negotiations, we consider a model where two bargainers interact in the presence of a third party that (a) can transfer a share of her benefits to the bargainers but cannot receive a share of the bilateral surplus, and (b) while she may not participate in all periods of the negotiation, she cannot remain entirely inhibited. Our main findings are:(1) the stakeholder's (reverse) liquidity constraint implies the existence of a multiplicity of stationary subgame perfect equilibria that include outcomes with very asymmetric bilateral agreements, and (2) the partial participation of the stakeholder may be the source of severe inefficiency.

Manzini acknowledges financial support from ESRC grant R000223438. Ponsati acknowledges financial support from the E.C. (Polarization and Conflict Project CIT-2- CT-2004-506084), M.E.C. (SEC-2003-01961) and C.R.E.A.-Barcelona Economics.

Peer Reviewed