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On the Nash bargaining solution with noise

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  • Guth, Werner
  • Ritzberger, Klaus
  • van Damme, Eric

Abstract

Suppose two parties have to share a surplus of random size.Each of the two can either commit to a demand prior to the realization of the surplus - as in the Nash demand game with noise - or remain silent and wait until the surplus was publicly observed.Adding the strategy to wait to the noisy Nash demand game results in two strict equilibria, in each of which one player takes almost the whole surplus, provided uncertainty is small.If commitments concern only who makes the first offer, the more balanced Nash bargaining solution is approximately restored.In all cases commitment occurs in equilibrium, even though this entails the risk of breakdown of negotiations.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 48 (2004)
Issue (Month): 3 (June)
Pages: 697-713

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Handle: RePEc:eee:eecrev:v:48:y:2004:i:3:p:697-713

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References

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  1. Eric van Damme & Sjaak Hurkens, 1996. "Endogenous Stackelberg leadership," Economics Working Papers 190, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Nir Dagan & Roberto Serrano, 1998. "Invariance and Randomness in the Nash Program for Coalitional Games," Economic theory and game theory 006, Nir Dagan.
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  4. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
  5. Spencer, Barbara J. & Brander, James A., 1992. "Pre-commitment and flexibility : Applications to oligopoly theory," European Economic Review, Elsevier, vol. 36(8), pages 1601-1626, December.
  6. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
  7. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  8. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  9. Abhinay Muthoo, . "A Bargaining Model Based on the Commitment Tactic," Economics Discussion Papers 420, University of Essex, Department of Economics.
  10. Sadanand, Asha & Sadanand, Venkatraman, 1996. "Firm Scale and the Endogenous Timing of Entry: a Choice between Commitment and Flexibility," Journal of Economic Theory, Elsevier, vol. 70(2), pages 516-530, August.
  11. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
  12. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-37, May.
  13. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  14. Mailath George J., 1993. "Endogenous Sequencing of Firm Decisions," Journal of Economic Theory, Elsevier, vol. 59(1), pages 169-182, February.
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Cited by:
  1. Werner Güth & Martin G. Kocher, 2013. "More than thirty years of ultimatum bargaining experiments: Motives, variations, and a survey of the recent literature," Jena Economic Research Papers 2013-035, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Roberto Serrano, 2004. "Fifty Years of the Nash Program, 1953-2003," Working Papers 2004-20, Brown University, Department of Economics.
  3. Eva Ferreira & Mónica Gago & Angel León & Gonzalo Rubio, 2005. "An empirical comparison of the performance of alternative option pricing models," Investigaciones Economicas, Fundación SEPI, vol. 29(3), pages 483-523, September.
  4. Poulsen, Anders U., 2004. "On efficiency, tie-breaking rules and role assignment procedures in evolutionary bargaining," Mathematical Social Sciences, Elsevier, vol. 47(2), pages 233-243, March.
  5. Tore Ellingsen & Topi Miettinen, 2007. "Disagreement and Authority," Jena Economic Research Papers 2007-037, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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