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The Impossibility of a Paretian Liberal, Game Theory and Negotiation

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  • Aldo Montesano

    (Bocconi University)

Abstract

Sen (J Polit Econ 78:152–157, 1970) has shown the possible contrast between the social preferences of individuals and their choices. This contrast prevents, in many situations, a social choice that satisfies both Pareto-optimality and liberalism. What liberalism can mean in the field of social choice and the relevance of social organization are briefly discussed. Sen's example, using game theory, determines an equilibrium that is not Pareto-optimal. The contrast between social choice and liberalism discussed by Sen derives from the presence of externalities and happens because it is assumed that individuals are isolated, that is, unable to negotiate with each other to reach a more convenient result for everyone. This paper introduces a kind of negotiation that determines a Pareto-optimal equilibrium if the negotiation is successful. Sen's example leads, using this bargaining process, to a Pareto-optimal equilibrium which is better for both individuals than the Nash equilibrium. This result does not imply that a negotiation always leads to a satisfactory equilibrium. Negotiation can lead to a Pareto-optimal agreement, which, however, is rejected by an individual, as this agreement is no better for him than equilibrium without negotiation, so that Sen’s dilemma reappears.

Suggested Citation

  • Aldo Montesano, 2022. "The Impossibility of a Paretian Liberal, Game Theory and Negotiation," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(3), pages 719-732, November.
    • Handle: RePEc:spr:italej:v:8:y:2022:i:3:d:10.1007_s40797-021-00152-5
    DOI: 10.1007/s40797-021-00152-5
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    References listed on IDEAS

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    1. repec:bla:econom:v:59:y:1992:i:234:p:161-77 is not listed on IDEAS
    2. Gibbard, Allan, 1974. "A Pareto-consistent libertarian claim," Journal of Economic Theory, Elsevier, vol. 7(4), pages 388-410, April.
    3. Sen, Amartya Kumar, 1970. "The Impossibility of a Paretian Liberal," Scholarly Articles 3612779, Harvard University Department of Economics.
    4. Sen, Amartya, 1970. "The Impossibility of a Paretian Liberal," Journal of Political Economy, University of Chicago Press, vol. 78(1), pages 152-157, Jan.-Feb..
    5. Sergiu Hart & Andreu Mas-Colell, 2010. "Bargaining and Cooperation in Strategic Form Games," Journal of the European Economic Association, MIT Press, vol. 8(1), pages 7-33, March.
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    More about this item

    Keywords

    Liberalism; Pareto optimality; Game theory; Bargaining;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D60 - Microeconomics - - Welfare Economics - - - General

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