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Stability, Fairness and Random Walks in the Bargaining Problem

Jakob Kapeller () and Stefan Steinerberger

No 2017-16, Economics working papers from Department of Economics, Johannes Kepler University Linz, Austria

Abstract: We study the classical bargaining problem and its two canonical solutions, (Nash and Kalai-Smorodinsky), from a novel point of view: we ask for stability of the solution if both players are able distort the underlying bargaining process by reference to a third party (e.g. a court). By exploring the simplest case, where decisions of the third party are made randomly we obtain a stable solution, where players do not have any incentive to refer to such a third party. While neither the Nash nor the Kalai-Smorodinsky solution are able to ensure stability in case reference to a third party is possible, we found that the Kalai-Smorodinsky solution seems to always dominate the stable allocation which constitutes novel support in favor of the latter.

Pages: 15 pages
Date: 2017-08
New Economics Papers: this item is included in nep-des and nep-gth
Note: English
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Related works:
Journal Article: Stability, fairness and random walks in the bargaining problem (2017) Downloads
Working Paper: Stability, Fairness and Random Walks in the Bargaining Problem (2017) Downloads
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