Bargaining with Giants and Immortals: Bargaining Power as the Core of Theorizing Inequality

Abstract

Unequal bargaining power lies at the core of the structurally unequal distribution of the cooperative surplus in capitalist market transactions. This insight, based on the classic repertoire of economic methodology, is much more powerful than it appears at first sight. I argue that the distribution of the bargaining outcome directly reflects the relative time-sensitivity of the bargaining partners, which is largely a function of the one-sided distribution of durable property rights. This insight poses a substantive as well as methodological challenge for recent scholarship in Law and Political Economy, which has argued that the law, as a fundamental factor in creating markets, must also have the power to regulate their outcomes by putting the values of equality and democracy ahead of efficiency. I argue that the usual strategies of legal regulation are highly unlikely to change the distributive pattern of the outcomes of capitalist market transactions. As a corollary, this insight underscores the indispensability of classical and neoclassical economics as an analytical tool of theorizing markets.

Keywords: Private Law Theory, Property, Contract, Law and Political Economy, Critical Legal Studies, Bargaining Theory, Capitalism

JEL Classification: A12, B12, B13, B14, C78, D23, D62, D63, K11, K12