Nash bargaining in ordinal environments
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Review of Economic Design, 2012, vol. 16, issue 4, 269-282
We analyze the implications of Nash’s (Econometrica 18:155–162, 1950 ) axioms in ordinal bargaining environments; there, the scale invariance axiom needs to be strenghtened to take into account all order-preserving transformations of the agents’ utilities. This axiom, called ordinal invariance, is a very demanding one. For two-agents, it is violated by every strongly individually rational bargaining rule. In general, no ordinally invariant bargaining rule satisfies the other three axioms of Nash. Parallel to Roth (J Econ Theory 16:247–251, 1977 ), we introduce a weaker independence of irrelevant alternatives (IIA) axiom that we argue is better suited for ordinally invariant bargaining rules. We show that the three-agent Shapley–Shubik bargaining rule uniquely satisfies ordinal invariance, Pareto optimality, symmetry, and this weaker IIA axiom. We also analyze the implications of other independence axioms. Copyright Springer-Verlag 2012
Keywords: Bargaining; Shapley–Shubik rule; Ordinal invariance; Independence of irrelevant alternatives; Brace; C78 (search for similar items in EconPapers)
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