A tale of two bargaining solutions
Author
Karagözoğlu, E.
Keskin, K.
Date
2015-06-19Source Title
Games
Print ISSN
2073-4336
Publisher
M D P I AG
Volume
6
Pages
161 - 174
Language
English
Type
ArticleItem Usage Stats
129
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92
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Abstract
We set up a rich bilateral bargaining model with four salient points (disagreement
point, ideal point, reference point, and tempered aspirations point), where the disagreement
point and the utility possibilities frontier are endogenously determined. This model allows
us to compare two bargaining solutions that use reference points, the Gupta-Livne solution
and the tempered aspirations solution, in terms of Pareto efficiency in a strategic framework.
Our main result shows that the weights solutions place on the disagreement point do not
directly imply a unique efficiency ranking in this bargaining problem with a reference point.
In particular, the introduction of a reference point brings one more degree of freedom to the
model which requires also the difference in the weights placed on the reference point to be
considered in reaching an efficiency ranking.