Discouraging Misrepresentation Under Nash Bargaining
12 Pages Posted: 23 Dec 2015
Date Written: December 23, 2015
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: Suggested Citation