Bargaining costs and social choice under uncertainty

What seems interesting to point out in the above considerations is that, assuming risk-aversion, uncertainty may account for a reduction in bargining costs through the potential operation of two distinct mechanisms. On the one hand it tends to make separate individual most-preferred values more similar to each other, i.e., it tends, in a certain sense, to generate a greater consensus among individuals regarding the division of the pay-off under dispute. Individuals become more agreeable even before negotiations start and, to that extent, one will expect, other things equal, a final collective choice to be more readily reached, thus implying (via an increase in h) a reduction in bargaining costs. On the other hand it seems that, even ignoring the more agreeable setting under which the bargain will proceed, the incentives each individual has to invest on strategic behavior in order to approach his best position tend, where incentive effects on production are not very strong, to decline since the potential gains from the bargain are reduced. This may also account for a reduction in BC (via a decline in g). Both mechanisms stem from the introduction of uncertainty in the model and work simultaneously in the same direction, reenforcing the effects of each other in reducing BC. Yet it seems they can, at least conceptually, be distinguished. Copyright Center for Study of Public Choice Virginia Polytechnic Institute and State University 1974