Bargaining under monotonicity constraints

P. Jean-Jacques Herings*, A. Predtetchinski

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Web of Science)
174 Downloads (Pure)

Abstract

We study unanimity bargaining on the division of a surplus in the presence of monotonicity constraints. The monotonicity constraints specify a complete order on the players, which has to be respected by the shares in the surplus the players obtain in any bargaining outcome. A player higher in the order should not receive a lower share of the surplus. We analyze the resulting subgame perfect equilibria in stationary strategies and show that they are characterized by the simpler notion of bargaining equilibrium. Bargaining equilibria are shown to be unique and to have the property that players ranked strictly higher obtain strictly higher shares in the surplus. The key question is whether the bargaining advantage of a higher-ranked player persists when the probability of breakdown of bargaining tends to zero. We argue that such is not the case by showing that bargaining equilibria have a unique limit equal to an equal division of the surplus. It then follows that the limit also coincides with the Nash bargaining solution for this problem.
Original languageEnglish
Pages (from-to)221-243
JournalEconomic Theory
Volume62
Issue number1-2
DOIs
Publication statusPublished - Jun 2016

JEL classifications

  • c72 - Noncooperative Games
  • c78 - "Bargaining Theory; Matching Theory"
  • d63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

Keywords

  • Non-cooperative bargaining
  • Monotonicity constraints
  • Subgame perfect equilibrium
  • Nash bargaining solution

Cite this