Bargaining procedures that induce honesty

Steven J. Brams, D. Marc Kilgour

    Research output: Contribution to journalArticle

    Abstract

    When bargaining between two actors over an object is modeled as a noncooperative game of incomplete information, equilibrium bids generally involve misrepresentation of the players' true values. But the bargainers' payoffs can be modified so that truthfully revealing one's reservation price is a dominant strategy. While such modifications define bargaining procedures that induce honesty in bidding and thereby avoid an inefficient outcome, these procedures may be vulnerable to other difficulties. The procedures analyzed are the following: Bonus Procedure: the players share a bonus equal to the overlap in their bids, whenever a settlement is feasible; Penalty Procedure: the settlement is reduced (usually probabilistically) to a level proportionate to the overlap of the bids, whenever a settlement is feasible; Appraisal Procedure: there is a settlement when, and only when, an independent appraisal is above the seller's and below the buyer's bid. The appraisal value is then the exchange price; Expansive Appraisal Procedure: there is a settlement at the appraised value, unless it is unfavorable to both the buyer and the seller. These honesty-inducing procedures are evaluated according to several criteria, namely, efficiency in achieving feasible trades, ability to be self-financing (rather than requiring a subsidy), vulnerability to collusion, and compatibility with each player's individual interests. Besides these theoretical assessments, practical considerations, including the need for a settlement, the means of implementation, and so on, are discussed.

    Original languageEnglish (US)
    Pages (from-to)239-262
    Number of pages24
    JournalGroup Decision and Negotiation
    Volume5
    Issue number3
    DOIs
    StatePublished - May 1996

    Keywords

    • Bargaining
    • Chatterjee-Samuelson procedure
    • Collusion
    • Ex-post efficiency
    • Incentive compatibility
    • Nash equilibrium
    • Revelation principle
    • Third-party intervention

    ASJC Scopus subject areas

    • Decision Sciences(all)
    • Arts and Humanities (miscellaneous)
    • Social Sciences(all)
    • Strategy and Management
    • Management of Technology and Innovation

    Fingerprint Dive into the research topics of 'Bargaining procedures that induce honesty'. Together they form a unique fingerprint.

    Cite this