2005-06 EC: On the Ranking of Bilateral Bargaining Opponents (working paper)
Ross Cressman and Maria Gallego
published: 2005 | Research publication | Working Paper - Economics
ABSTRACT: We fix the status quo (Q) and one of the bilateral bargaining agents to examine how shifting the opponent.s ideal point (type) away from Q in a unidimensional space a¤ects the Nash and Kalai-Smorodinsky bargaining solutions when opponents di¤er only in their ideal points. The results are similar for both solutions. As anticipated, the bargainer whose ideal point is farthest from Q prefers a opponent whose ideal is closest to her own. A similar intuitive ranking emerges for the player closest to Q when opponent's preferences exhibit increasing absolute risk aversion. However, if the opponent.s preferences exhibit decreasing absolute risk aversion (DARA), the player closest to Q prefers a more extreme opponent. This unintuitive result arises for opponents with DARA preferences because the farther their ideal point is from Q, the easier they are to satisfy.
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revised Aug 30/05