[A picture of Oliver Kirchkamp]

Lecture Bargaining Theory

Online teaching
To protect you and your contacts during the SARS-CoV-2 pandemic, the module will be offered online.
You will receive the lecture as weekly videos (see below). Each week you submit a brief homework (see the Moodle-page of the course). The homework counts for the final grade. We will discuss the homework in (interactive) exercises. The first exercise will be on 20.4., 14:15. You find a link to the Zoom room in Moodle
Exam
Fri., 6. August, 10-12.
The final grade is 2/3 the result of a final exam and 1/3 the weekly homework.
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 (the time table is an estimate, please expect some adjustments during the term):
= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Nash's theorem, applications."; $link = 0; $prevWeek = 15; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Risk aversion, applications (bribery, asset ownership)."; $link = 0; $prevWeek = 16; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Discussion of Nash's axioms."; $link = 0; $prevWeek = 17; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Applications (moral hazard in teams)."; $link = 0; $prevWeek = 18; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "The strategic approach: Rubinstein's model."; $link = 0; $prevWeek = 19; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Strategies in bargaining in the alternating offers model. Nash equilibrium."; $link = 0; $prevWeek = 20; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Subgame perfect equilibrium."; $link = 0; $prevWeek = 21; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Constant discount rates, fixed bargaining cost, finitely divisible pies."; $link = 0; $prevWeek = 22; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Outside options, more than two players, comparison Rubinstein/Nash."; $link = 0; $prevWeek = 23; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Incomplete information."; $link = 0; $prevWeek = 24; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Markets and decentralised trade."; $link = 0; $prevWeek = 25; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; $top = "Decentralised trade (cont.)"; $link = 0; $prevWeek = 26; $weekDiff = ($sWeek + 53 - $prevWeek) % 53; $weekDiff2 = ($sWeek + 53 - 32) % 53; if($weekDiff >= 0 and $weekDiff < 25 and $weekDiff2>25 and $weekDiff2<53) { $top = "".$top.""; } echo " "; ?>
TopicLecture in week...Exercise in week...
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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.