Oliver Kirchkamp
[A picture of Oliver Kirchkamp]

Lecture Bargaining Theory Summer 2013

Date
This course is part of the International Max Planck Research School on Adapting Behavior in a Fundamentally Uncertain World. It can also be credited as a part of MW24.3
As a block, from 5.8.-9.8.2013, 14:00, V14, MPI für Ökonomik,
Exam
9.8.2013
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:
  • Introduction, Nash's bargaining solution
  • proof, properties of the solution, alternatives, applications (risk aversion, crime)
  • applications (asset ownership)
  • applications (moral hazard in teams), discussion of Nash's axioms
  • discussion of Nash's axioms (cont.).
    The strategic approach, Rubinstein's model
  • Rubinstein's model (cont.)
  • different equilibrium concepts in the Rubinstein model
  • constant discount rates, alternative proof, fixed bargaining cost
  • finitely divisible pies, outside options
  • outside options (cont.), more than two players, comparison Rubinstein/Nash
  • incomplete information
  • Markets and decentralised trade
  • decentralised trade (cont.)
Past exams:
July 2004, October 2004, January 2006, Februar 2007
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 solve these problems and tries to explain how 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?
Aims
Students should understand the main paradigms of axiomatic bargaining theory (Nash, Kalai-Smorodinsky) and of strategic bargaining theory (Rubinstein's alternating offer game). Optionally the course can include applications to markets.