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Bargaining, Interdependence and the Rationality of Fair Division

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  • Giuseppe Lopomo
  • Efe A Ok

Abstract

We consider two-person bargaining games with interdependent preferences and bilateral incomplete information. We show that in both the ultimatum game and the two-stage alternating-offers game, our equilibrium predictions are consistent with a number of robust experimental regularities that falsify the standard game theoretic model: occurrence of disagreements, disadvantageous counteroffers, and outcomes that come close to the equal split of the pie. In the context of infinite-horizon bargaining, the implications of the model pertaining to fair outcomes is even stronger. In particular, the Coase property in our case generates "almost" 50-50 splits of the pie, almost immediately. The present approach thus provides a positive theory for the frequently encountered phenomenon of the 50-50 division of the gains from trade. Copyright 2001 by the RAND Corporation.

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000395.

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Date of creation: 01 Sep 2004
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Handle: RePEc:cla:levrem:122247000000000395

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  1. Kirchsteiger, Georg, 1994. "The role of envy in ultimatum games," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 25(3), pages 373-389, December.
  2. Cho, In-Koo, 1990. "Uncertainty and Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(4), pages 575-95, October.
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  5. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 97-109, January.
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  8. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  9. Herrero, Maria Jose, 1989. "The nash program: Non-convex bargaining problems," Journal of Economic Theory, Elsevier, Elsevier, vol. 49(2), pages 266-277, December.
  10. G. Bolton, 2010. "A comparative model of bargaining: theory and evidence," Levine's Working Paper Archive 263, David K. Levine.
  11. Gary E Bolton & Rami Zuwick, 2010. "Anonymity versus punishments in ultimatum bargaining," Levine's Working Paper Archive 826, David K. Levine.
  12. Ellingsen, Tore, 1995. "The Evolution of Bargaining Behavior," Working Paper Series in Economics and Finance 61, Stockholm School of Economics.
  13. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 3(4), pages 367-388, December.
  14. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
  15. Kockesen, Levent & Ok, Efe A., 1997. "Negatively Interdependent Preferences," Working Papers, C.V. Starr Center for Applied Economics, New York University 97-02, C.V. Starr Center for Applied Economics, New York University.
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  18. Bolton, Gary E., 1997. "The rationality of splitting equally," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 32(3), pages 365-381, March.
  19. Colin F. Camerer & Richard H. Thaler, 1995. "Anomalies: Ultimatums, Dictators and Manners," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(2), pages 209-219, Spring.
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  23. Daughety, A.F., 1993. "Socially-Influenced Choice : Equity Considerations in Models of Consumer Choice and Games," Working Papers, University of Iowa, Department of Economics 93-01, University of Iowa, Department of Economics.
  24. Forsythe Robert & Horowitz Joel L. & Savin N. E. & Sefton Martin, 1994. "Fairness in Simple Bargaining Experiments," Games and Economic Behavior, Elsevier, Elsevier, vol. 6(3), pages 347-369, May.
  25. J. Ochs & Alvin E. Roth, 1998. "An experimental study of sequential bargaining," Levine's Working Paper Archive 331, David K. Levine.
  26. Gul, Faruk & Sonnenschein, Hugo, 1988. "On Delay in Bargaining with One-Sided Uncertainty," Econometrica, Econometric Society, Econometric Society, vol. 56(3), pages 601-11, May.
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Citations

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Cited by:
  1. Shreekant Gupta, 2010. "Incentive Based Approaches for Mitigating Greenhouse Gas Emmissions : Issues And Prospects for India," Working Papers id:2638, eSocialSciences.
  2. Shyh-fang Ueng, 2005. "A theory of efficient coexistence," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 19(3), pages 397-416.
  3. Hasan, Hamid & Ejaz, Nauman, 2013. "Testing for Differences across Genders: A Replication of Ultimatum Game at International Islamic University, Islamabad," MPRA Paper 44923, University Library of Munich, Germany.
  4. Rasch, Alexander & Wambach, Achim & Wiener, Kristina, 2012. "Bargaining and inequity aversion: On the efficiency of the double auction," Economics Letters, Elsevier, Elsevier, vol. 114(2), pages 178-181.
  5. Shreekant Gupta, 2000. "Incentive-Based Approaches for Mitigating Greenhouse Gas Emissions: Issues and Prospects for India," Working papers, Centre for Development Economics, Delhi School of Economics 85, Centre for Development Economics, Delhi School of Economics.
  6. Sigbjørn Birkeland & Bertil Tungodden, 2014. "Fairness motivation in bargaining: a matter of principle," Theory and Decision, Springer, Springer, vol. 77(1), pages 125-151, June.
  7. Carmen Marchiori, 2010. "Concern for Fairness and Incentives in Water Negotiations," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 45(4), pages 553-571, April.
  8. Cox, Caleb A., 2013. "Inequity aversion and advantage seeking with asymmetric competition," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 86(C), pages 121-136.
  9. Mark A. Jamison, 2004. "Effects of Industry Concentration on Quality Choices for Network Connectivity," Working Papers, NET Institute 04-08, NET Institute.
  10. Barry Feldman, 2005. "Lost in Translation? Basis Utility and Proportionality in Games," Game Theory and Information, EconWPA 0507001, EconWPA, revised 06 Jul 2005.

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