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Judicial Precedent as a Dynamic Rationale for Axiomatic Bargaining Theory

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  • Marc Fleurbaey
  • John Roemer

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 a (infinite) sequence of two-person problems; at each date, the Judge is presented with a utility possibility set in R2+. 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 as that date. Under what conditions what 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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Paper provided by www.najecon.org in its series NajEcon Working Paper Reviews with number 814577000000000442.

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Date of creation: 01 Feb 2010
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Handle: RePEc:cla:najeco:814577000000000442

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Web page: http://www.najecon.org/

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Cited by:
  1. Jens L. Hougaard & Juan D. Moreno-Ternero & Lars P. Osterdal, 2012. "Rationing in the presence of baselines," Working Papers 12.04, Universidad Pablo de Olavide, Department of Economics.

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