Evolution, Bargaining, and Time Preferences

Abstract

I include a role for time preferences within a version of the Young (J. Econ. Theory 59:145-168, 1993b) evolutionary model of bargaining. With or without time preferences, the stochastic stable convention yields a generalized version of the Nash (Econometrica 18:155–162, 1950) Bargaining Solution. When time preferences are added to the model, agents’ discount factors enter into the stochastically stable convention in a natural manner. That is, an agent’s discount factor acts as a bargaining weight within the Nash Bargaining Solution. By taking appropriate limits, an evolutionary foundation for the Rubinstein (Econometrica 50:97-110, 1982) Bargaining Solution is provided

Keywords: Time preference, Evolution, Barganining, Nash Bargaining Solution, Agents, Discount factor

JEL Classification: C72, C73, C78