Discouraging Misrepresentation Under Nash Bargaining

12 Pages Posted: 23 Dec 2015

See all articles by R. Rothschild

R. Rothschild

Lancaster University - Department of Economics

Date Written: December 23, 2015

Abstract

One aspect of the well-known Nash (1950, 1953) bargaining framework that appears to have remained largely neglected is the possibility that the parties to the bargain may have the incentive to misrepresent their true outside options if agreement fails to occur. Yet it is precisely in situations in which the outcome to an agent depends crucially upon her ability to persuade an arbitrator of her outside option that the behavior of the agent is most likely to be 'dishonest'. In this paper we consider how the situation might arise within the context of the Nash-type bargaining framework, where an arbitrator makes an allocation on the basis of the security payoffs that the agents choose to declare. We propose an arbitration rule that makes it possible to overcome the incentives that agents might have for such misrepresentation.

Keywords: Nash bargaining, Arbitration, Discouraging Misrepresentation

JEL Classification: C7, D82

Suggested Citation

Rothschild, R., Discouraging Misrepresentation Under Nash Bargaining (December 23, 2015). Available at SSRN: https://ssrn.com/abstract=2707578 or http://dx.doi.org/10.2139/ssrn.2707578

R. Rothschild (Contact Author)

Lancaster University - Department of Economics ( email )

Bailrigg
Lancaster LA1 4YX
United Kingdom
+441524594217 (Phone)
+441524594244 (Fax)

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