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Judicial precedent as a dynamic rationale for axiomatic bargaining theory

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  • Fleurbaey, Marc

    ()
    (CNRS and Université Paris Descartes)

  • Roemer, John E.

    ()
    (Departments of Political Science and Economics, Yale University)

Abstract

Axiomatic bargaining theory (e.g., Nash's theorem) is static. We attempt to provide a dynamic justification for the theory. Suppose a Judge or Arbitrator must allocate utility in an (infinite) sequence of two-person problems; at each date, the Judge is presented with a utility possibility set in the nonnegative orthant in two-dimensional Euclidean space. He/she must choose an allocation in the set, constrained only by Nash's axioms, in the sense that a penalty is paid if and only if a utility allocation is chosen at date T which is inconsistent, according to one of the axioms, with a utility allocation chosen at some earlier date. Penalties are discounted with t, and the Judge chooses any allocation, at a given date, that minimizes the penalty he/she pays at that date. Under what conditions will the Judge's chosen allocations converge to the Nash allocation over time? We answer this question for three canonical axiomatic bargaining solutions: Nash's, Kalai-Smorodinsky's, and the 'egalitarian' solution, and generalize the analysis to a broad class of axiomatic models.

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Bibliographic Info

Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 6 (2011)
Issue (Month): 2 (May)
Pages:

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Handle: RePEc:the:publsh:588

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Web page: http://econtheory.org

Related research

Keywords: Axiomatic bargaining theory; judicial precedent; dynamic foundations; Nash's bargaining solution;

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Cited by:
  1. Jens Leth Hougaard & Juan D. Moreno-Ternero & Lars Peter Østerdal, 2010. "Baseline Rationing," Discussion Papers 10-16, University of Copenhagen. Department of Economics.
  2. HOUGAARD, Jean Leth & MORENO-TERNERO, Juan D. & OSTERDAL, Lars Peter, . "Rationing in the presence of baselines," CORE Discussion Papers RP -2470, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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