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Folk Theorem For Bilateral Bargaining with Vector Endowments

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  • Milan Horniacek

Abstract

We analyse a bargaining game of two players on the division of the sum of their vector endowments, with alternating proposals and discounting of single period utilities. The pair of endowments is not weakly Pareto‐efficient. Until they reach an agreement, each of the parties can withdraw from bargaining and keep their endowments. Any strictly individually rational division of the sum of endowments can emerge in some subgame perfect equilibrium if discount factors are close enough to one. Each subgame perfect equilibrium, in which the parties’ decisions do not depend on past rejected proposals, leads to a weakly Pareto‐efficient agreement in the first period.

Suggested Citation

  • Milan Horniacek, 2004. "Folk Theorem For Bilateral Bargaining with Vector Endowments," Bulletin of Economic Research, Wiley Blackwell, vol. 56(3), pages 283-297, July.
    • Handle: RePEc:bla:buecrs:v:56:y:2004:i:3:p:283-297
    DOI: 10.1111/j.1467-8586.2004.00203.x
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    References listed on IDEAS

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    3. Drew Fudenberg & Eric Maskin, 2008. "The Folk Theorem In Repeated Games With Discounting Or With Incomplete Information," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 11, pages 209-230, World Scientific Publishing Co. Pte. Ltd..
    4. Manzini, Paola & Mariotti, Marco, 2002. "The Effect of Disagreement on Noncooperative Bargaining," Journal of Economic Theory, Elsevier, vol. 107(2), pages 490-499, December.
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