Two-person bargaining when the disagreement point is private information

Eric van Damme and Xu Lang

Games and Economic Behavior, 2025, vol. 150, issue C, 387-400

Abstract: We consider two-person bargaining problems in which (only) the disagreement payoffs are private information and it is common knowledge that disagreement is inefficient. We show that, in the NTU-case, if the Pareto frontier is linear, the players' interim utilities of an ex post efficient mechanism cannot depend on the disagreement payoffs. If the frontier is non-linear, the result continues to hold when the conflict payoffs are independent, or one player has at most two types. In the TU-case, a similar independence result holds for ex post efficient mechanisms that are individually rational, provided the players' budgets satisfy a certain condition. We discuss implications of these results for axiomatic bargaining theory, surplus extraction by an informed principal and egalitarian mechanisms.

Keywords: Bargaining problem; Incomplete information; Axiomatic method; Efficiency; Disagreement (search for similar items in EconPapers)
JEL-codes: C71 C78 D82 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:150:y:2025:i:c:p:387-400

DOI: 10.1016/j.geb.2025.01.012

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