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Mysterious Bargaining

Author

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  • Dan Usher

    (Department of Economics, Queen's University)

Abstract

Economists do not understand how bargains are struck. A bargain is the sharing of a pie between two or more people who are collectively entitled to the pie but cannot appropriate it until they agree how large each person's slice is to be. We know that people do strike bargains and that civilized life could not proceed otherwise. We do not know how the required agreement is reached. Theorists have solved the bargaining problem, but only by the imposition of strong, artificial and unrealistic constraints. Trusting that the existence of some complex solution has been demonstrated, applied economists are content to postulate a simple one: that bargainers split the difference in actual disputes. This paper begins with examples of imposed bargaining solutions in politics and corporation finance. There follows a critical examination of the principal bargaining theories - based on notions of fairness or of imposed bargaining procedures - with emphasis on the fragility of their assumptions and on their susceptibility to threats and blackmail. The paper closes with a brief discussion of connections among theories of bargaining, rent-seeking and conflict.

Suggested Citation

  • Dan Usher, 2001. "Mysterious Bargaining," Working Paper 1001, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1001
    as

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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1001.pdf
    File Function: First version 2001
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    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, October.
    3. Hirshleifer, Jack, 1991. "The Technology of Conflict as an Economic Activity," American Economic Review, American Economic Association, vol. 81(2), pages 130-134, May.
    4. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
    5. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 251-262, Springer.
    6. John Sutton, 1986. "Non-Cooperative Bargaining Theory: An Introduction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(5), pages 709-724.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bargaining; Fairness;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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