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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. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  2. J. Ochs & Alvin E. Roth, 1998. "An experimental study of sequential bargaining," Levine's Working Paper Archive 331, David K. Levine.
  3. Andrew E. Clark and Andrew J. Oswald, . "Satisfaction and Comparison Income," Economics Discussion Papers 419, University of Essex, Department of Economics.
  4. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July.
  5. Gary E Bolton & Rami Zuwick, 2010. "Anonymity versus punishments in ultimatum bargaining," Levine's Working Paper Archive 826, David K. Levine.
  6. Kennan, J. & Wilson, R., 1991. "Bargaining with Private Information," Working Papers 90-01rev, University of Iowa, Department of Economics.
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  8. repec:att:wimass:9601 is not listed on IDEAS
  9. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-136, December.
  10. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  11. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  12. Bolton, Gary E., 1997. "The rationality of splitting equally," Journal of Economic Behavior & Organization, Elsevier, vol. 32(3), pages 365-381, March.
  13. Ellingsen, Tore, 1995. "The Evolution of Bargaining Behavior," Working Paper Series in Economics and Finance 61, Stockholm School of Economics.
  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. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  16. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  17. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  18. Efe A. Ok & Levent KoÚkesen, 2000. "Negatively interdependent preferences," Social Choice and Welfare, Springer, vol. 17(3), pages 533-558.
  19. Forsythe Robert & Horowitz Joel L. & Savin N. E. & Sefton Martin, 1994. "Fairness in Simple Bargaining Experiments," Games and Economic Behavior, Elsevier, vol. 6(3), pages 347-369, May.
  20. Kirchsteiger, Georg, 1994. "The role of envy in ultimatum games," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 373-389, December.
  21. Colin F. Camerer & Richard H. Thaler, 1995. "Anomalies: Ultimatums, Dictators and Manners," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 209-219, Spring.
  22. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  23. Gul, Faruk & Sonnenschein, Hugo, 1988. "On Delay in Bargaining with One-Sided Uncertainty," Econometrica, Econometric Society, vol. 56(3), pages 601-11, May.
  24. James Andreoni & John H Miller, 1997. "Giving according to GARP: an experimental study of rationality and altruism," Levine's Working Paper Archive 672, David K. Levine.
  25. Herrero, Maria Jose, 1989. "The nash program: Non-convex bargaining problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 266-277, December.
  26. Cho, In-Koo, 1990. "Uncertainty and Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 575-95, October.
  27. Daughety, A.F., 1993. "Socially-Influenced Choice : Equity Considerations in Models of Consumer Choice and Games," Working Papers 93-01, University of Iowa, Department of Economics.
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Cited by:
  1. Barry Feldman, 2005. "Lost in Translation? Basis Utility and Proportionality in Games," Game Theory and Information 0507001, EconWPA, revised 06 Jul 2005.
  2. Rasch, Alexander & Wambach, Achim & Wiener, Kristina, 2012. "Bargaining and inequity aversion: On the efficiency of the double auction," Economics Letters, Elsevier, vol. 114(2), pages 178-181.
  3. Carmen Marchiori, 2010. "Concern for Fairness and Incentives in Water Negotiations," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 45(4), pages 553-571, April.
  4. Sigbjørn Birkeland & Bertil Tungodden, 2014. "Fairness motivation in bargaining: a matter of principle," Theory and Decision, Springer, vol. 77(1), pages 125-151, June.
  5. Shyh-fang Ueng, 2005. "A theory of efficient coexistence," International Economic Journal, Taylor & Francis Journals, vol. 19(3), pages 397-416.
  6. Shreekant Gupta, 2000. "Incentive-Based Approaches for Mitigating Greenhouse Gas Emissions: Issues and Prospects for India," Working papers 85, Centre for Development Economics, Delhi School of Economics.
  7. Mark A. Jamison, 2004. "Effects of Industry Concentration on Quality Choices for Network Connectivity," Working Papers 04-08, NET Institute.
  8. Shreekant Gupta, 2010. "Incentive Based Approaches for Mitigating Greenhouse Gas Emmissions : Issues And Prospects for India," Working Papers id:2638, eSocialSciences.
  9. 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.
  10. Cox, Caleb A., 2013. "Inequity aversion and advantage seeking with asymmetric competition," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 121-136.

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