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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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Bibliographic Info

Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 98-13.

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Date of creation: 1998
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Handle: RePEc:ste:nystbu:98-13

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Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
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References

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  1. Clark, Andrew E. & Oswald, Andrew J., 1994. "Satisfaction and comparison income," CEPREMAP Working Papers (Couverture Orange) 9408, CEPREMAP.
  2. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  3. 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.
  4. Ochs, Jack & Roth, Alvin E, 1989. "An Experimental Study of Sequential Bargaining," American Economic Review, American Economic Association, vol. 79(3), pages 355-84, June.
  5. Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
  6. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
  7. Gary E Bolton & Rami Zuwick, 2010. "Anonymity versus punishments in ultimatum bargaining," Levine's Working Paper Archive 826, David K. Levine.
  8. Bolton, Gary E., 1997. "The rationality of splitting equally," Journal of Economic Behavior & Organization, Elsevier, vol. 32(3), pages 365-381, March.
  9. 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.
  10. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  11. Matthew Rabin., 1997. "Psychology and Economics," Economics Working Papers 97-251, University of California at Berkeley.
  12. Ellingsen, Tore, 1995. "The Evolution of Bargaining Behavior," Working Paper Series in Economics and Finance 61, Stockholm School of Economics.
  13. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
  14. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  15. G. Bolton, 2010. "A comparative model of bargaining: theory and evidence," Levine's Working Paper Archive 263, David K. Levine.
  16. Efe A. Ok & Levent KoÚkesen, 2000. "Negatively interdependent preferences," Social Choice and Welfare, Springer, vol. 17(3), pages 533-558.
  17. Herrero, Maria Jose, 1989. "The nash program: Non-convex bargaining problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 266-277, December.
  18. Cho, In-Koo, 1990. "Uncertainty and Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 575-95, October.
  19. Kirchsteiger, Georg, 1994. "The role of envy in ultimatum games," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 373-389, December.
  20. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  21. 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.
  22. 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.
  23. 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.
  24. Gul, Faruk & Sonnenschein, Hugo, 1988. "On Delay in Bargaining with One-Sided Uncertainty," Econometrica, Econometric Society, vol. 56(3), pages 601-11, May.
  25. 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.
  26. 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.
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Citations

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Cited by:
  1. Cox, Caleb A., 2013. "Inequity aversion and advantage seeking with asymmetric competition," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 121-136.
  2. 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.
  3. 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.
  4. Shyh-fang Ueng, 2005. "A theory of efficient coexistence," International Economic Journal, Taylor & Francis Journals, vol. 19(3), pages 397-416.
  5. 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.
  6. Barry Feldman, 2005. "Lost in Translation? Basis Utility and Proportionality in Games," Game Theory and Information 0507001, EconWPA, revised 06 Jul 2005.
  7. Shreekant Gupta, 2010. "Incentive Based Approaches for Mitigating Greenhouse Gas Emmissions : Issues And Prospects for India," Working Papers id:2638, eSocialSciences.
  8. Mark A. Jamison, 2004. "Effects of Industry Concentration on Quality Choices for Network Connectivity," Working Papers 04-08, NET Institute.
  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. Sigbjørn Birkeland & Bertil Tungodden, 2014. "Fairness motivation in bargaining: a matter of principle," Theory and Decision, Springer, vol. 77(1), pages 125-151, June.

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