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Learning From a Piece of Pie

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  • Pierre-Andre Chiappori

    ()
    (Columbia University - Department of Economics)

  • Olivier Donni

    ()
    (Universitie de Cergy-Pontoise - Department of Economics)

  • Ivana Komunje

    ()
    (University of California San Diego - Department of Economics)

Abstract

We investigate the empirical content of the Nash solution to two-player bar-gaining games. The bargaining environment is described by a set of variables that may affect agents' preferences over the agreement sharing, the status quo outcome, or both. The outcomes (i.e., whether an agreement is reached, and if so the individual shares) and the environment (including the size of the pie) are known, but neither are the agents' utilities nor their threat points. We consider both a deterministic version of the model in which the econometrician observes the shares as deterministic functions of the variables under consideration, and a stochastic one in which because of latent disturbances only the joint distribution of incomes and outcomes is recorded. We show that in the most general framework any outcome can be rationalized as a Nash solution. However, even mild exclusion restrictions generate strong implications that can be used to test the Nash bargaining assumption. Stronger conditions further allow to recover the underlying structure of the bargaining, and in particular, the cardinal representation of individual preferences in the absence of uncertainty. An implication of this finding is that empirical works entailing Nash bargaining could (and should) use much more general and robust versions than they usually do.

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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 1011-05.

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Date of creation: 2011
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Handle: RePEc:clu:wpaper:1011-05

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Cited by:
  1. Bram De Rock & Laurens Cherchye & Thomas Demuynck, 2013. "The empirical content of Cournot competition," ULB Institutional Repository 2013/151678, ULB -- Universite Libre de Bruxelles.
  2. Bo Honore & Aureo de Paula, 2013. "Interdependent durations in joint retirement," CeMMAP working papers CWP05/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  3. Echenique, Federico & Chambers, Christopher P., 2014. "On the consistency of data with bargaining theories," Theoretical Economics, Econometric Society, vol. 9(1), January.

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