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2002 | Book

Introduction Read chapter Read first chapter

Bilateral Bargaining

Theory and Applications

Author: Stefan Napel

Publisher: Springer Berlin Heidelberg

Book Series : Lecture Notes in Economics and Mathematical Systems

Included in: Professional Book Archive

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About this book

This book investigates bargaining between two agents. Its objective is to present, to extend, and to apply the present state of theoretical knowledge. A wide range of questions will be considered: First of all, will two parties reach efficient agreements? Traditional economic theory gives a generally affirma­ tive answer for perfectly rational agents, who can carry out complex calcu­ lations instantaneously and without cost. The book uses innovative methods to analyse the implications of less demanding assumptions. A practical ques­ tion related to bargaining is: How much power does the design of institutions such as the U. N. Security Council give to each of its members? Formally, non­ permanent members' votes are necessary to pass resolutions, but theoretical investigation of pre-voting negotiation attributes all power to the five perma­ nent members. Or one may ask whether a society should rather finance the education in higher mathematics for a talented person than remedial training for a retarded person? Different concepts of justice yield different answers. Which particular concept is implemented in a given society is also a matter of bargaining, and it is of special philosophical interest to investigate which bargain will be struck in an ideal society in which individual talents and resources are not yet known. Very generally, a bilateral bargaining situation is characterized by two agents - individuals, firms, governments, etc.

Table of Contents

Frontmatter
Introduction
Abstract
This book investigates bargaining betwen two agents. Its objective is to preset, to extend, and to apply the present state of theoretical knowledge. A wide range of questions will be considered: First of all, will two parties reach efficient agreements? Traditional economic theory gives a generally affirmative answer for perfectly rational agents, who can carry out complex calculation instantaneously and without cost. The book uses innovative methods to analyse the implications of less demanding assumptions. A practical question related to bargaining is: How much power does the design of institutions such as the U.N. Security Council give to each of its members? Formally, nonpermanent members’ votes are necessary to pass resolutions, but theoretical investigation of pre-voting negotiation attributes all power to the five permanent members. Or one may ask whether a society should rather finance the education in higher mathematics for a talented person than remedial training for a retarded person? Different concepts of justice yield different answers. Which particular concept is implemented in a given society is also a matte of bargaining, and it is of special philosophical interest to investigate which bargain will be struck in an ideal society in which individual talents and resources are not yet known.
Stefan Napel
1. Essentials of Bargaining Theory
Abstract
This chapter gives an introduction to essential concepts and models of two-person negotiations, i. e. bilateral bargaining theory. The main purpose is to provide necessary preliminaries for the subsequent chapters. However, it is deemed worthwhile to add to an already large literature an introduction which aims to combine mathematical precision with particular comprehensibility, and which for the first time presents a comprehensive history of thought that ranges from Edgeworth’s work in 1881 to most recent corroborations of classical predictions for bargaining by evolutionary models. Moreover, several results appear in more generality than is common or — to the author’s knowledge — for the first time. Recommended other introductions to bargaining theory are Osborne and Rubinstein (1990), Binmore, Osborne, and Rubinstein (1992), and Muthoo (1999). Familiarity with basic game theory is assumed, but the appendix to this book collects all game-theoretic concepts, notation, and results which are used.
Stefan Napel
2. Aspiration-based Bargaining
Abstract
This chapter combines stochastic evolutionary methodology (cf. Sect. 1.4.1) with satisficing behaviour in a bargaining situation, and analyses the latter’s implications for efficiency and distribution. Two boundedly rational agents recurrently play the ultimatum minigame (see Sect. 1.4.2) in fixed roles. Each player satisfices, i. e. sticks to his past action if it has been satisfactory relative to an endogenous aspiration level; otherwise he abandons it with positive probability. Aspirations reflect evolving wishes or heuristic goals which players use for an ex post evaluation of their choice. Players’ aspirations rise after positive feedback, i.e, a payoff above the present aspiration level, and fall after negative feedback. Occasionally, aspirations are perturbed.
Stefan Napel
3. Bilateral Bargaining and Decision Power
Abstract
Simple games are n-player cooperative games in which each subset of players can be classified as either a winning coalition or a losing coalition. They can be used to model economic or political decision bodies like parliaments or shareholder meetings in which proposals are either passed or rejected. Power indices are functions that map n-person simple games to n-dimensional real vectors. They assign to each player a number that indicates the player’s a priori power to shape events, and they have been applied to evaluate numerous political and economic institutions in practice. Power distributions in the context of shareholders’ meetings have been one focus of attention, with the theoretical challenge of accounting for cross-ownership (see e. g. Leech 1988 and Gambarelli and Owen 1994). In the political sphere, decision making in the U.S. Congress, U. S. presidential elections, the U. N. Security Council, and the institutions of the European Union have all been studied extensively using power indices1. Power measurement techniques have played an important role in the discussion of institutional amendments in preparation of an enlargement of the European Union at the Nice 2000 summit (see e. g. The Economist, November 25th 2000, p. 126).
Stefan Napel
4. Bargaining and Justice
Abstract
Bargaining situations are usually analysed in terms of an ordinal or cardinal representation of players’ preferences, and not the underlying allocations of goods, monetary transfers, etc. This abstraction makes bargaining models versatile and applicable in many contexts. In Chap. 1, the classical bargaining problems of bilateral exchange and the division of rents in a bilateral monopoly have been the chief examples. Chapter 2 has considered the repeated division of surpluses which may also be created by social rather than economic interaction. Then, Chap. 3 has investigated implications of bilateral bargaining in the context of political decision-making. This chapter will depart further from pure economics. It deals with principles of social justice, and the norms and institutions which organize surplus sharing at the level of society.
Stefan Napel
Backmatter
Metadata
Title
Bilateral Bargaining
Author
Stefan Napel
Copyright Year
2002
Publisher
Springer Berlin Heidelberg
Electronic ISBN
978-3-642-56160-3
Print ISBN
978-3-540-43335-4
DOI
https://doi.org/10.1007/978-3-642-56160-3