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Compensatory transfers in two-player decision problems

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  • Jerry Green

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Abstract

This paper presents an axiomatic characterization of a family of solutions to two-player quasi-linear social choice problems. In these problems the players select a single action from a set available to them. They may also transfer money between themselves. The solutions form a one-parameter family, where the parameter is a non-negative number, t . The solutions can be interpreted as follows: Any efficient action can be selected. Based on this action, compute for each player a “best claim for compensationâ€. A claim for compensation is the difference between the value of an alternative action and the selected efficient action, minus a penalty proportional to the extent to which the alternative action is inefficient. The coefficient of proportionality of this penalty is t . The best claim for compensation for a player is the maximum of this computed claim over all possible alternative actions. The solution, at the parameter value t , is to implement the chosen efficient action and make a monetary transfer equal to the average of these two best claims. The characterization relies on three main axioms. The paper presents and justifies these axioms and compares them to related conditions used in other bargaining contexts. In Nash Bargaining Theory, the axioms analogous to these three are in conflict with each other. In contrast, in the quasi-linear social choice setting of this paper, all three conditions can be satisfied simultaneously.

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File URL: http://hdl.handle.net/10.1007/s00182-005-0200-1
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Bibliographic Info

Article provided by Springer in its journal International Journal of Game Theory.

Volume (Year): 33 (2005)
Issue (Month): 2 (06)
Pages: 159-180

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Handle: RePEc:spr:jogath:v:33:y:2005:i:2:p:159-180

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Related research

Keywords: bargaining; quasi-linear solutions; monetary transfers; cost allocation;

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References

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  1. Moulin, Herve, 1985. "Egalitarianism and Utilitarianism in Quasi-linear Bargaining," Econometrica, Econometric Society, vol. 53(1), pages 49-67, January.
  2. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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  4. Tadenuma, Koichi & Thomson, William, 1993. "The fair allocation of an indivisible good when monetary compensations are possible," Mathematical Social Sciences, Elsevier, vol. 25(2), pages 117-132, February.
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  6. Thomson, A., 1989. "The Consistency Principle," RCER Working Papers 192, University of Rochester - Center for Economic Research (RCER).
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  9. Elster, Jon, 1991. "Local justice : How institutions allocate scarce goods and necessary burdens," European Economic Review, Elsevier, vol. 35(2-3), pages 273-291, April.
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Cited by:
  1. Yuan Ju, 2013. "Efficiency and compromise: a bid-offer–counteroffer mechanism with two players," International Journal of Game Theory, Springer, vol. 42(2), pages 501-520, May.
  2. Geoffroy de Clippel & Camelia Bejan, 2009. "No Profitable Decomposition in Quasi-Linear Allocation Problems," Working Papers 2009-6, Brown University, Department of Economics.

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