The Effect of Entitlements and Equality on Cooperative Bargaining with Private, Unverifiable Information

Christopher Bruce and Jeremy Clark

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: In many bargaining situations a third party is authorized to impose a backstop position on the bargainers. Prominent examples include governments who use collaborative policymaking between stakeholders to set public policy, but also compulsory arbitration in labour negotiations. Axiomatic models of cooperative bargaining, such as the Nash bargain, presume that the status quo allocation will have no effect on the outcome parties reach if it differs from the backstop set by the third party. In contrast, experimental findings have suggested that both equality of outcomes and entitlement (where the status quo establishes a focal point) may affect the agreements bargainers reach, at least under full information. This paper extends the investigation of the effect of equality and entitlement on cooperative bargaining to the case where parties have private, unverifiable information concerning the value of outcomes. We use a two-party, two-attribute experimental design in which subjects take part in unstructured, face-to-face bargaining to jointly select from among approximately 200 potential outcomes. We find that, relative to full information, parties who bargain under private information are almost as likely to reach agreements as those under full information, and that these agreements are still approximately Pareto efficient. Further, the effect of the status quo (rather than backstop) allocation seems amplified under private information, while the effect of equality is dampened, but not eliminated.

Keywords: cooperative bargaining; private information; Nash bargain; egalitarian; entitlement; fairness; focal points (search for similar items in EconPapers)
JEL-codes: C92 D74 H44 Q58 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-11-04
New Economics Papers: this item is included in nep-cdm, nep-cta and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:10/68

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