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Barter, efficiency, and money prices: dissecting Nash's bargaining example

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  • Fritz Helmedag

Abstract

John Nash's own illustration of his famous bargaining solution has fallen into oblivion. There, a good is traded that the giver appreciates more than the taker. Although this transaction contributes to the largest (weighted) product of utility gains, their sum falls below the attainable maximum which indicates efficiency. In addition, it is shown that with a medium of exchange and 'fair' prices both criteria can be met. The participants then enjoy the same benefits from exchange. Accordingly, even with only two persons, money can improve their welfare. The insights presented in this paper deserve to find their way into classrooms.

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  • Fritz Helmedag, 2018. "Barter, efficiency, and money prices: dissecting Nash's bargaining example," International Journal of Pluralism and Economics Education, Inderscience Enterprises Ltd, vol. 9(3), pages 292-299.
    • Handle: RePEc:ids:ijplur:v:9:y:2018:i:3:p:292-299
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    Keywords

    bargaining; barter; Nash; money.;
    All these keywords.

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