Share the Gain, Share the Pain? Almost Transferable Utility, Changes in Production Possibilities, and Bargaining Solutions
Consider a two-person economy in which allocative efficiency is independent of distribution but the cardinal properties of the agents' utility functions precludes transferable utility (a property I call “Almost TU”). I show that Almost TU is a necessary and sufficient condition for both agents to either benefit or to lose with any change in production possibilities under generalized utilitarian bargaining solutions (of which the Nash Bargaining solution is a special case) and under the Kalai-Smorodinsky solution. I apply the result to household decision-making in the context of the Rotten Kid Theorem and discuss other applications.
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