MW24.3  Lecture Quantitative Economics II (Summer 2021)  Master Program in Economics
There are many interesting topics in quantitative economics. In the past we did
Auction theory, Information Economics, Bayesian Econometrics, Resampling and Models with Mixed Effects. This year we will study Bargaining Theory:
 Online teaching
 To protect you and your contacts during the SARSCoV2 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 Moodlepage 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, 1012.
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, 513518.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:

Topic  Lecture in week...  Exercise in week... 
Introduction, von NeumannMorgenstern Utility, Nash's axioms.  15  16 
Nash's theorem, applications.  16  17 
Risk aversion, applications (bribery, asset ownership).  17  18 
Discussion of Nash's axioms.  18  19 
Applications (moral hazard in teams).  19  20 
The strategic approach: Rubinstein's model.  20  21 
Strategies in bargaining in the alternating offers model. Nash equilibrium.  21  22 
Subgame perfect equilibrium.  22  23 
Constant discount rates, fixed bargaining cost, finitely divisible pies.  23  24 
Outside options  24  25 
More than two players, comparison Rubinstein/Nash  25  26 
Incomplete information.  26  27 
Markets and decentralised trade.  27  28 
 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,
KalaiSmorodinsky) and of strategic bargaining theory (Rubinstein's alternating
offer game). Optionally the course can include applications to markets.