Outside options and confidence in Zeuthen-Hicks bargaining

Luis Dias and Rudolf Vetschera
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Rudolf Vetschera: Faculty of Business, Economics and Statistics, University of Vienna

No 2019-05, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: The Zeuthen-Hicks bargaining model connects strategic and axiomatic bargaining models by providing a description of the behavior of each party,and showing that the entire process leads to the axiomatically founded Nash bargaining solution. In its original formulation, the model treats parties asymmetrically by considering different decision alternatives of the focal party (who can either accept the opponent's offer or make a counteroffer, but not quit the negotiation) and the opponent (who can accept the focal party's offer or quit the negotiation, but not make a counteroffer). We extend the model to consider the full set of possible actions from both sides, which requires explicit modeling of the expectations of the parties concerning outcomes and outside options that become available during the process. We show analytically that under the assumption of concave utilities of both parties, the bargaining process converges to the nonsymmetric Nash bargaining solution. This result provides a new interpretation of the parameters of the nonsymmetric Nash bargaining solution, linking them to behavior in the bargaining process. Furthermore,we perform a simulation study to analyze the outcomes for non-concave utilities.

Keywords: Zeuthen-Hicks bargaining; Nonsymmetric Nash bargaining solution; negotiator confidence. (search for similar items in EconPapers)
JEL-codes: C44 C63 C72 C78 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2019-10
New Economics Papers: this item is included in nep-gth, nep-mic, nep-ore and nep-upt
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