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Bargaining and Incentive Compatibility: A Pareto Frontier Approach

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Author Info
Juan Camilo Gómez (Institute of Economics, University of Copenhagen)

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Abstract

Two agents negotiate, according to the Nash bargaining solution, over the allocation of a single (divisible) commodity (or multiple commodities with fixed ordinal preferences). It has been shown that in this situation agents find dominant to report their least risk averse utility functions. This result depends crucially on the fact that in this kind of "distortion game", agents have been restricted to report risk-averse utility functions. This paper studies the distortion game originated when agents are also allowed to claim non risk-averse utility functions. Contrasting with previous literature, we find multiple Nash equilibria, multiple payo outcomes and the existence of a first-mover advantage.

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Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 04-02.

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Length: 15 pages
Date of creation: Nov 2003
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Handle: RePEc:kud:kuiedp:0402

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Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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  1. Kannai, Yakar, 1977. "Concavifiability and constructions of concave utility functions," Journal of Mathematical Economics, Elsevier, vol. 4(1), pages 1-56, March. [Downloadable!] (restricted)
  2. Sobel, Joel, 1981. "Distortion of Utilities and the Bargaining Problem," Econometrica, Econometric Society, vol. 49(3), pages 597-619, May. [Downloadable!] (restricted)
  3. Kibris, Ozgur, 2002. "Misrepresentation of Utilities in Bargaining: Pure Exchange and Public Good Economies," Games and Economic Behavior, Elsevier, vol. 39(1), pages 91-110, April. [Downloadable!] (restricted)
  4. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-18, May. [Downloadable!] (restricted)
  5. Nielsen, Lars Tyge, 1984. "Risk sensitivity in bargaining with more than two participants," Journal of Economic Theory, Elsevier, vol. 32(2), pages 371-376, April. [Downloadable!] (restricted)
  6. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-61, July. [Downloadable!] (restricted)
  7. Kannai, Yakar & Mantel, Rolf, 1978. "Non-Convexifiable Pareto Sets," Econometrica, Econometric Society, vol. 46(3), pages 571-75, May. [Downloadable!] (restricted)
  8. Thomson, William, 1994. "Cooperative models of bargaining," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 35, pages 1237-1284 Elsevier. [Downloadable!] (restricted)
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  9. Kurz, Mordecai, 1977. "Distortion of preferences, income distribution, and the case for a linear income tax," Journal of Economic Theory, Elsevier, vol. 14(2), pages 291-298, April. [Downloadable!] (restricted)
  10. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. [Downloadable!] (restricted)
  11. Chipman, John S. & Moore, James C., 1972. "Social utility and the gains from trade," Journal of International Economics, Elsevier, vol. 2(2), pages 157-172, May. [Downloadable!] (restricted)
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