Individual rationality and bargaining

Abraham Diskin and Dan S. Felsenthal

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We argue that Nash’s solution to the bargaining problem should be modified such that it will be based on a New Reference Point (NRP). Such a point is needed so that a player is not considered ‘individually rational’ if he accepts an agreement that provides him with a utility lower than the minimal utility he can derive from any Pareto optimal agreement, or if he accepts an agreement that provides him a utility lower than the one he can obtain by unilateral action. The employment of such NRP requires modifying two axioms and hence leads to a new proposed solution.

Keywords: Bargaining problem; Individual rationality; Minimal utility; Nash's bargaining solution; Pareto optimality; Reference point (search for similar items in EconPapers)
JEL-codes: C78 (search for similar items in EconPapers)
Date: 2007-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in Public Choice, October, 2007, 133(1-2), pp. 25-29. ISSN: 1573-7101

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