A Noncooperative Foundation of the Neutral Bargaining Solution

Abstract

This paper studies Myerson's neutral bargaining solution for a class of Bayesian bargaining problems in which the solution is unique. For this class of examples, I consider a noncooperative mechanism-selection game. I find that all of the interim incentive efficient mechanisms can be supported as sequential equilibria. Further, standard refinement concepts and selection criteria do not restrict the large set of interim Pareto-undominated sequential equilibria. I provide a noncooperative foundation of the neutral bargaining solution by characterizing the solution as a unique coherent equilibrium allocation.

Keywords: Neutral bargaining solution, mechanism-selection game, equilibrium refinement, equilibrium selection criterion, credibility, coherent plan

JEL Classification: C71, C72, C78, D82