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The Decomposability of the Nash Bargaining Solution in Labor Markets

Claus-Jochen Haake (), Thorsten Upmann () and Papatya Duman ()
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Claus-Jochen Haake: Paderborn University
Thorsten Upmann: Bielefeld University
Papatya Duman: Paderborn University

No 128, Working Papers CIE from Paderborn University, CIE Center for International Economics

Abstract: In this paper, we analyze the two-dimensional Nash bargaining solution (NBS) deploying a standard labor market negotiations model (see McDonald and Solow, 1981; Creedy and McDonald, 1991). We show that the two-dimensional bargaining problem can be decomposed into two one-dimensional problems such that the (Cartesian) product of the solutions of these problems replicates the solution of the two-dimensional problem, if the NBS is applied. However, this decomposition fails for any solution concept that does not satisfy the axiom of Independence of Irrelevant Alternatives (IIA axiom). Our decomposition result has significant implications for actual negotiations, as it allows for the decomposition of a multi-issue bargaining problem into a set of simpler problems, in particular a set of singleissue bargaining problems. In this way, the decomposition may help facilitate negotiations in labor markets and also in other environments.

Keywords: Labor market negotiations; Efficient bargains; Nash bargaining solution; Sequential bargaining; Restricted bargaining games (search for similar items in EconPapers)
JEL-codes: C78 J41 J52 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2019-11
New Economics Papers: this item is included in nep-gth, nep-lma and nep-ore
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