Bargaining, interdependence, and the rationality of fair division

Giuseppe Lopomo, Efe A. Ok

    Research output: Contribution to journalArticle

    Abstract

    We consider two-person bargaining games with interdependent preferences and bilateral incomplete information. We show that in both the ultimatum game and the two-stage alternating-offers game, our equilibrium predictions are consistent with a number of robust experimental regularities that falsify the standard game-theoretic model: occurrence of disagreements, disadvantageous counteroffers, and outcomes that come close to the equal split of the pie. In the context of infinite-horizon bargaining, the implications of the model pertaining to fair outcomes are even stronger. In particular, the Coase property in our case generates "almost" 50-50 splits of the pie, almost immediately. The present approach thus provides a positive theory for the frequently encountered phenomenon of the 50-50 division of the gains from trade.

    Original languageEnglish (US)
    Pages (from-to)263-283
    Number of pages21
    JournalRAND Journal of Economics
    Volume32
    Issue number2
    DOIs
    StatePublished - 2001

    ASJC Scopus subject areas

    • Economics and Econometrics

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