Endogenous Bargaining Power

UPF Economics and Business Working Paper No. 644

21 Pages Posted: 19 Jun 2003

See all articles by Joan Maria Esteban

Joan Maria Esteban

Autonomous University of Barcelona

Jozsef Sakovics

The University of Edinburgh

Abstract

We present a novel approach to N-person bargaining, based on the idea that the agreement reached in a negotiation is determined by how the direct conflict resulting from disagreement would be resolved. Our basic building block is the disagreement function, which maps each set of feasible outcomes into a disagreement point. Using this function and a weak axiom based on individual rationality we reach a unique solution: The agreement in the shadow of conflict, ASC. This agreement may be construed as the limit of a sequence of partial agreements, each of which is reached as a function of the parties' relative power. We examine the connection between ASC and asymmetric Nash solutions. We show the connection between the power of the parties embodied in the ASC solution and the bias in the SWF that would select ASC as an asymmetric Nash solution.

Keywords: Bargaining, conflict, disagreement

JEL Classification: C78, D74

Suggested Citation

Esteban, Joan Maria and Sakovics, Jozsef, Endogenous Bargaining Power. UPF Economics and Business Working Paper No. 644. Available at SSRN: https://ssrn.com/abstract=394381 or http://dx.doi.org/10.2139/ssrn.394381

Joan Maria Esteban

Autonomous University of Barcelona ( email )

Campus UAB
E-08193 Bellaterra
Spain
34 93 580 6612 (Phone)
34 93 580 1452 (Fax)

Jozsef Sakovics (Contact Author)

The University of Edinburgh ( email )

30 Buccleuch Place
Edinburgh, EH8 9JT, Scotland
United Kingdom

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