Evolution of Division Rules
AbstractSeveral division rules have been proposed in the literature regarding how an arbiter should divide a bankrupt estate. Different rules satisfy different sets of axioms, but all rules satisfy claims boundedness which requires that no contributor be given more than her initial contribution. This paper takes two non-cooperative bargaining games - the contracting game (Young, 1998a), and the Nash demand game, and adds the axiom of claims boundedness to the rules of these games. Outcomes prescribed by all the division rules are strict Nash equilibria in the one-shot version of both these augmented games. We show that the division suggested by the truncated claims proportional rule is the unique long run outcome if we embed the augmented contracting game in Young’s (1993b) evolutionary bargaining model. With the augmented Nash demand game as the underlying bargaining game, the long run outcome is the division prescribed by the constrained equal awards rule.
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Bibliographic InfoPaper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2006-27.
Length: 21 pages
Date of creation: Oct 2006
Date of revision:
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
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