Oliver Kirchkamp
[A picture of Oliver Kirchkamp]

Lecture Bargaining Theory

In the module we explore quantitative and mathematical methods of economic theory. We focus on decision processes involving multiple stakeholders, their negotiations and their agreements. Even with conflicting interests, decision makers can reach mutually beneficial outcomes through negotiation and compromise. We discuss what makes some decision makers more willing to cooperate and make commitments, and what makes other decision makers more reluctant to compromise. Understanding the negotiation and decision-making processes that shape sustainable outcomes supports the understanding of topics like climate negotiations, the management of shared resources, the participation of stakeholders and the balancing of diverse interests
Online-teaching:
The module will be offered online.

This is a course with a more technical topic. For this course the online format offers benefits for learning that we miss in a traditional lecture room. Online videos allow you to follow your own learning speed. You can (and you should) pause your video, slow down or fast forward according to your individual learning speed. Weekly online homeworks give you regular feedback and help you to engage with the material. Online discussions and exercises provide and enhance interaction.

As a result, the online format gives you a much better learning experience and more room to interact. For this course, students are clearly more successful with online teaching than students with traditional teaching. In the past, with traditional classroom teaching, about 25% of the students failed the course. Now, with on-line teaching, fewer than 5% of the students fail.

Lecture + Exercises:
Oliver Kirchkamp. During the term you will in each week obtain a new set of videos. You can choose when (and how) you watch these videos. These videos will remain available until the end of the term. I recommend to follow a routine: Watch the weekly videos on always the same day at always the same time. Each week you will also complete a small homework.
Weekly homework:
Each week you will submit a small homework (through Moodle). Although different students will work on different problems, it will be useful to discuss your homework in your study group. You should use the discussion board in Moodle to ask questions and to stay in touch with the other members of the course.

You can obtain 1/3 of the total points (130 points) with the homework. You can obtain 2/3 of the total points (260 points) in the exam on 04.08.2025, 08:30.

At the end of the term, you will find extra (optional) problem sets in Moodle. These problem sets are similar in style to the exam. If you want to improve your routine for the exam, you can try these problems as often as you like. However, these extra problems don't count for your grade.

Discussion board + Online Meeting:
Please use the discussion board in Moodle to ask questions and to discuss issues related to the lecture. I try to answer your questions as soon as possible, usually within one working day.

You find the access code for the online meeting Moodle. Before joining the meeting, you should have watched the videos and you should have made an attempt to solve the homework. Please come in time and, if possible, activate your camera. I don't plan to introduce new material in the discussion board or online meeting.

Exam:
  • You obtain up to 1/3 of the total points (130 points) in the weekly homework.
  • You obtain up to 2/3 of the total points (260 points) in the exam on 04.08.2025, 08:30, . The style of the questions in the take home exam on 04.08.2025, 08:30, will be similar to the questions in the weekly homework.

    The sum of the points (up to 390 points) determines your grade. I assume that, pursuant to the »Prüfungsordnung«, the weekly homework and the take home exam constitute a single partial exam.

  • Date: 04.08.2025, 08:30 (online). You can write the exam at home — provided you have a good connection to the internet. If you prefer to write at the FSU Jena, please let me know.
  • Resit of the final exam: 10.10.2025, 10:30 (online).

    Students who want to take the resit of the final exam must register in time with the examination office.

  • Instructions for the exam
  • If you want to obtain credits for the course, please do not forget to register for the exam!
  • Preparing for the exam: During the term you should solve the problems from the weekly homework. During the last weeks of the term, you will find in Moodle “extra questions”. This is a quiz, similar in style to the exam, that you can take as often as you want. Each time you take this quiz you get a new collection of problems. When you submit these extra questions exam, you will get immediate feedback. You can work on these extra questions to get more routine for your exam. Points scored in this quiz don't contribute to your final grade.
Prerequisites:
Some game theory (e.g. as covered in BW24.2), basic calculus (here are some basic differentiation rules)
Literature:
  • Kalai, E. & M. Smorodinsky (1975): “Other Solutions to Nash`s Bargaining Problem”, Econometrica, 43, 513-518.Jstor
  • Muthoo, A. (1999): Bargaining theory with applications. Cambridge Univ. Press, Cambridge
  • Osborne, M. J. & A. Rubinstein (1990): Bargaining and markets. Academic Press, San Diego.
  • Roth, A. E. (1995): Bargaining Experiments , ch. 4 in The Handbook of Experimental Economics, ed. by J. H. Kagel & A. E. Roth.
  • Shaked, A. and J. Sutton (1984), Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model , Econometrica 52, 1351 1364 Jstor
Outline:
TopicLectureExercise
1. Introduction, von Neumann-Morgenstern Utility, Nash's axioms.07.04.2025 14.04.2025
2. Nash's theorem, applications.14.04.2025 21.04.2025
3. Risk aversion, applications (bribery, asset ownership).21.04.2025 28.04.2025
4. Discussion of Nash's axioms.28.04.2025 05.05.2025
5. Applications (moral hazard in teams).05.05.2025 12.05.2025
6. The strategic approach: Rubinstein's model.12.05.2025 19.05.2025
7. Strategies in bargaining in the alternating offers model. Nash equilibrium.19.05.2025 26.05.2025
8. Subgame perfect equilibrium.26.05.2025 02.06.2025
9. Constant discount rates, fixed bargaining cost, finitely divisible pies.02.06.2025 09.06.2025
10. Outside options09.06.2025 16.06.2025
11. More than two players, comparison Rubinstein/Nash16.06.2025 23.06.2025
12. Incomplete information.23.06.2025 30.06.2025
13. Markets and decentralised trade.30.06.2025 07.07.2025
14. Summary, exercises, discussion board, Q+A.07.07.2025 14.07.2025
Motivation:
Consider a situation where two agents obtain gains from cooperation. This could be an exchange that is mutually beneficial or a cooperation in a political or social environment. How should the agents divide the proceeds from their joint project? How is the ratio of goods in an exchange, how the result of a political or personal settlement determined? Market equilibria assume a large number of agents and the presence of a Walrasian auctioneer — assumptions that are not always fulfilled. Bargaining theory attempts to address this issue, studying a situation where a small number of players find a settlement in a distributive conflict. Is the settlement always efficient or is it found only after time consuming and costly negotiations? Who is the winner and who the looser of a settlement? How is bargaining power determined? How, finally, can we compare such a bargaining solution with market equilibria?
Learning aims:
Students should understand the main paradigms of axiomatic bargaining theory (Nash, Kalai-Smorodinsky) and of strategic bargaining theory (Rubinstein's alternating offer game).
FAQ: