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Distortion through modeling asymmetric bargaining power

Author

Listed:
  • Claus-Jochen Haake

    (Paderborn University)

  • Thomas Streck

    (Paderborn University)

Abstract

We study the impact on outcomes from modeling asymmetric bargaining power in two-person bargaining problems in two different ways. For the Nash and the Kalai-Smorodinsky solutions, we compare application of the asymmetric version of the solution to the outcome from the symmetric version with an upfront modification of the disagreement point. We identify a systematic distortion of the final payoff for each bargaining solution, which is different across the two solutions. While for the Kalai-Smorodinsky solution a player with small power always benefits from modifying the disagreement point, the situation is reversed for the Nash bargaining solution. There, weak players are better off in the asymmetric bargaining solution. When comparing the application of the asymmetric versions of the Nash and the Kalai-Smorodinsky solutions, we demonstrate that there is a threshold weight for a player to be better off with the Nash bargaining solution. This threshold is determined by the relative utilitarian bargaining solution.

Suggested Citation

  • Claus-Jochen Haake & Thomas Streck, 2024. "Distortion through modeling asymmetric bargaining power," Working Papers Dissertations 143, Paderborn University, Faculty of Business Administration and Economics.
    • Handle: RePEc:pdn:dispap:143
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    File URL: http://groups.uni-paderborn.de/wp-wiwi/RePEc/pdf/dispap/DP143.pdf
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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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