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Evolution of Division Rules

Birendra Rai ()

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: Several division rules have been proposed in the literature regarding how an arbiter should divide a bankrupt estate. Different rules satisfy different sets of axioms, but all rules satisfy claims boundedness which requires that no contributor be given more than her initial contribution. This paper takes two non-cooperative bargaining games - the contracting game (Young, 1998a), and the Nash demand game, and adds the axiom of claims boundedness to the rules of these games. Outcomes prescribed by all the division rules are strict Nash equilibria in the one-shot version of both these augmented games. We show that the division suggested by the truncated claims proportional rule is the unique long run outcome if we embed the augmented contracting game in Young’s (1993b) evolutionary bargaining model. With the augmented Nash demand game as the underlying bargaining game, the long run outcome is the division prescribed by the constrained equal awards rule.

Keywords: fair division; stochastic stability (search for similar items in EconPapers)
JEL-codes: C73 C78 D63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe
Date: 2006-10
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