Bargaining, Interdependence, and the Rationality of Fair Division

Posted: 14 May 2001

See all articles by Giuseppe Lopomo

Giuseppe Lopomo

Fuqua School - Duke University; Duke University - Department of Economics

Efe A. Ok

Leonard N. Stern School of Business - Department of Economics

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 are 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.

Suggested Citation

Lopomo, Giuseppe and Ok, Efe A., Bargaining, Interdependence, and the Rationality of Fair Division. RAND Journal of Economics, Vol. 32, No. 2. Available at SSRN: https://ssrn.com/abstract=267999

Giuseppe Lopomo (Contact Author)

Fuqua School - Duke University ( email )

Box 90097
Durham, NC 27708-0097
United States
(919) 660-7820 (Phone)
(919) 660-7971 (Fax)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Efe A. Ok

Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-8920 (Phone)
212-995-4186 (Fax)

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