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The Decomposability of the Nash Bargaining Solution in Labor Markets

Author

Listed:
  • Claus-Jochen Haake

    (Paderborn University)

  • Thorsten Upmann

    (Bielefeld University)

  • Papatya Duman

    (Paderborn University)

Abstract

In this paper, we analyze the two-dimensional Nash bargaining solution (NBS) deploying a standard labor market negotiations model (see McDonald and Solow, 1981; Creedy and McDonald, 1991). We show that the two-dimensional bargaining problem can be decomposed into two one-dimensional problems such that the (Cartesian) product of the solutions of these problems replicates the solution of the two-dimensional problem, if the NBS is applied. However, this decomposition fails for any solution concept that does not satisfy the axiom of Independence of Irrelevant Alternatives (IIA axiom). Our decomposition result has significant implications for actual negotiations, as it allows for the decomposition of a multi-issue bargaining problem into a set of simpler problems, in particular a set of singleissue bargaining problems. In this way, the decomposition may help facilitate negotiations in labor markets and also in other environments.

Suggested Citation

  • Claus-Jochen Haake & Thorsten Upmann & Papatya Duman, 2019. "The Decomposability of the Nash Bargaining Solution in Labor Markets," Working Papers CIE 128, Paderborn University, CIE Center for International Economics.
    • Handle: RePEc:pdn:ciepap:128
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    References listed on IDEAS

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    More about this item

    Keywords

    Labor market negotiations; Efficient bargains; Nash bargaining solution; Sequential bargaining; Restricted bargaining games;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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