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Endogenous bargaining power

Author

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  • Joan Esteban
  • József Sákovics
Abstract
We present a novel approach to N-person bargaining, based on the idea that the agreement reached in a negotiation is determined by how the direct conflict resulting from disagreement would be resolved. Our basic building block is the disagreement function, which maps each set of feasible outcomes into a disagreement point. Using this function and a weak axiom based on individual rationality we reach a unique solution: the agreement in the shadow of conflict, ASC. This agreement may be construed as the limit of a sequence of partial agreements, each of which is reached as a function of the parties’ relative power. We examine the connection between ASC and asymmetric Nash solutions. We show the connection between the power of the parties embodied in the ASC solution and the bias in the SWF that would select ASC as an asymmetric Nash solution.

Suggested Citation

  • Joan Esteban & József Sákovics, 2002. "Endogenous bargaining power," Economics Working Papers 644, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:644
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Svejnar, Jan, 1986. "Bargaining Power, Fear of Disagreement, and Wage Settlements: Theory and Evidence from U.S. Industry," Econometrica, Econometric Society, vol. 54(5), pages 1055-1078, September.
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    Cited by:

    1. Schwarz Mordechai E., 2012. "Subgame Perfect Plea Bargaining in Biform Judicial Contests," Review of Law & Economics, De Gruyter, vol. 8(1), pages 297-330, September.
    2. Omonbude, Ekpen J., 2007. "The transit oil and gas pipeline and the role of bargaining: A non-technical discussion," Energy Policy, Elsevier, vol. 35(12), pages 6188-6194, December.
    3. Jozsef Sakovics, 2004. "A meaningful two-person bargaining solution based on ordinal preferences," Economics Bulletin, AccessEcon, vol. 3(26), pages 1-6.
    4. Santiago Sanchez-Pages, 2004. "Conflict as a Part of the Bargaining Process: Theory and Empirical Evidence," Edinburgh School of Economics Discussion Paper Series 129, Edinburgh School of Economics, University of Edinburgh.
    5. Santiago Sanchez-Pages, 2003. "The use of conflict as a bargaining tool against unsophisticated opponents," Edinburgh School of Economics Discussion Paper Series 99, Edinburgh School of Economics, University of Edinburgh.

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    More about this item

    Keywords

    Bargaining; conflict; disagreement;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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