Bargaining: A Unified Approach

• Department of Economics

In this event, Leslie Marx (Duke University) will present the paper 'Bargaining: A Unified Approach.'

Bargaining is central to economics, yet subject to rich, often contradictory assumptions and results. We provide a bargaining framework with independent private values that captures systematically, as special cases, non-Coasian relevance and Coasian irrelevance of ownership, the possibility and impossibility of ex post efficiency, and the presence and absence of countervailing power effects. Bargaining is modeled as an incentive compatible mechanism that maximizes the weighted sum of the agents' expected surpluses subject to interim individual rationality and no-deficit constraints. We show that finding ownership structures consistent with ex post efficient bargaining is both more difficult and less important than finding bargaining weights with that property: There is no ownership structure that is always consistent with ex post efficient bargaining whereas equal bargaining weights always are, but bargaining weights matter for a larger set of the environments than ownership structures. With two agents, these results hold for both constant and decreasing marginal values when private information pertains to the vertical of the inverse demand function. With decreasing marginal values, ex post efficiency can be achieved with extremal ownership when supports of the type distributions overlap.

Co-author: Simon Loertscher