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Bargaining, Interdependence and the Rationality of Fair Division

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  • Giuseppe Lopomo
  • Efe A Ok

Abstract

We consider two-person bargaining games with interdependent preferences and bilateral incomplete information. We show that in both the ultimatum game and the two-stage alternating-offers game, our equilibrium predictions are consistent with a number of robust experimental regularities that falsify the standard game theoretic model: occurrence of disagreements, disadvantageous counteroffers, and outcomes that come close to the equal split of the pie. In the context of infinite-horizon bargaining, the implications of the model pertaining to fair outcomes is even stronger. In particular, the Coase property in our case generates "almost" 50-50 splits of the pie, almost immediately. The present approach thus provides a positive theory for the frequently encountered phenomenon of the 50-50 division of the gains from trade. Copyright 2001 by the RAND Corporation.
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  • Giuseppe Lopomo & Efe A Ok, 2001. "Bargaining, Interdependence and the Rationality of Fair Division," Levine's Working Paper Archive 563824000000000114, David K. Levine.
    • Handle: RePEc:cla:levarc:563824000000000114
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    References listed on IDEAS

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    2. Rasch, Alexander & Wambach, Achim & Wiener, Kristina, 2012. "Bargaining and inequity aversion: On the efficiency of the double auction," Economics Letters, Elsevier, vol. 114(2), pages 178-181.
    3. Shreekant Gupta, 2000. "Incentive-Based Approaches for Mitigating Greenhouse Gas Emissions: Issues and Prospects for India," Working papers 85, Centre for Development Economics, Delhi School of Economics.
    4. Kyropoulou, Maria & Ortega, Josué & Segal-Halevi, Erel, 2022. "Fair cake-cutting in practice," Games and Economic Behavior, Elsevier, vol. 133(C), pages 28-49.
    5. Carmen Marchiori, 2010. "Concern for Fairness and Incentives in Water Negotiations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 45(4), pages 553-571, April.
    6. Sigbjørn Birkeland & Bertil Tungodden, 2014. "Fairness motivation in bargaining: a matter of principle," Theory and Decision, Springer, vol. 77(1), pages 125-151, June.
    7. Mark A. Jamison, 2004. "Effects of Industry Concentration on Quality Choices for Network Connectivity," Working Papers 04-08, NET Institute.
    8. Raul Caruso, 2006. "A Trade Institution as a Peaceful Institution? A Contribution to Integrative Theory," Conflict Management and Peace Science, Peace Science Society (International), vol. 23(1), pages 53-72, February.
    9. Giuseppe Lopomo & Efe A Ok, 2004. "Bargaining, Interdependence and the Rationality of Fair Division," Levine's Bibliography 122247000000000395, UCLA Department of Economics.
    10. Shyh-fang Ueng, 2005. "A theory of efficient coexistence," International Economic Journal, Taylor & Francis Journals, vol. 19(3), pages 397-416.
    11. Ramarao Desiraju & David E. M. Sappington, 2007. "Equity and Adverse Selection," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 285-318, June.
    12. Garrett, Daniel F., 2020. "Payoff Implications of Incentive Contracting," TSE Working Papers 20-1140, Toulouse School of Economics (TSE).
    13. Cox, Caleb A., 2013. "Inequity aversion and advantage seeking with asymmetric competition," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 121-136.
    14. Shreekant Gupta, 2010. "Incentive Based Approaches for Mitigating Greenhouse Gas Emmissions : Issues And Prospects for India," Working Papers id:2638, eSocialSciences.
    15. Barry Feldman, 2005. "Lost in Translation? Basis Utility and Proportionality in Games," Game Theory and Information 0507001, University Library of Munich, Germany, revised 28 Feb 2006.
    16. Jack Fanning & Andrew Kloosterman, 2022. "An experimental test of the Coase conjecture: Fairness in dynamic bargaining," RAND Journal of Economics, RAND Corporation, vol. 53(1), pages 138-165, March.
    17. Maria Kyropoulou & Josu'e Ortega & Erel Segal-Halevi, 2018. "Fair Cake-Cutting in Practice," Papers 1810.08243, arXiv.org, revised Feb 2022.

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