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On the Ranking of Bilateral Bargaining Opponents

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We fix the status quo (Q) and one of the bilateral bargaining agents to examine how shifting the opponent.s ideal point (type) away from Q in a unidimensional space affects the Nash and Kalai-Smorodinsky bargaining solutions when opponents differ only in their ideal points. The results are similar for both solutions. As anticipated, the bargainer whose ideal point is farthest from Q prefers a opponent whose ideal is closest to her own. A similar intuitive ranking emerges for the player closest to Q when opponent\'s preferences exhibit increasing absolute risk aversion. However, if the opponent\'s preferences exhibit decreasing absolute risk aversion (DARA), the player closest to Q prefers a more extreme opponent. This unintuitive result arises for opponents with DARA preferences because the farther their ideal point is from Q, the easier they are to satisfy.

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File URL: http://www.wlu.ca/documents/7723/Cressman%2526Gallego_May_05.pdf
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Paper provided by Wilfrid Laurier University, Department of Economics in its series Working Papers with number eg0043.

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Length: 37
Date of creation: 2005
Date of revision: 2005
Handle: RePEc:wlu:wpaper:eg0043
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  1. Volij, Oscar & Winter, Eyal, 2002. "On Risk Aversion and Bargaining Outcomes," Staff General Research Papers Archive 10130, Iowa State University, Department of Economics.
  2. Kannai, Yakar, 1977. "Concavifiability and constructions of concave utility functions," Journal of Mathematical Economics, Elsevier, vol. 4(1), pages 1-56, March.
  3. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
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  5. Thomson, William, 1987. "Monotonicity of bargaining solutions with respect to the disagreement point," Journal of Economic Theory, Elsevier, vol. 42(1), pages 50-58, June.
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  7. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
  8. Alejandro Saporiti & Fernando Tohmé, 2006. "Single-Crossing, Strategic Voting and the Median Choice Rule," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 26(2), pages 363-383, April.
  9. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-518, May.
  10. Peters Hans & Köbberling Vera, 2000. "The Effect of Decision Weights in Bargaining Problems," Research Memorandum 037, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  11. Maria Gallego, David Scoones, 2005. "The Art of Compromise," Working Papers eg0042, Wilfrid Laurier University, Department of Economics, revised 2005.
  12. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  13. Alesina, Alberto & Rosenthal, Howard, 1996. "A Theory of Divided Government," Econometrica, Econometric Society, vol. 64(6), pages 1311-1341, November.
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  15. Thomson, W., 1989. "Cooperative Models Of Bargaining," RCER Working Papers 177, University of Rochester - Center for Economic Research (RCER).
  16. Hans Peters & Walter Bossert, 2002. "Efficient solutions to bargaining problems with uncertain disagreement points," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 19(3), pages 489-502.
  17. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
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