Bargaining theory with applications

Abstract

Strategic foundations of negotiation are examined through a systematic synthesis of game-theoretic bargaining models. The analysis integrates the axiomatic Nash bargaining solution with the non-cooperative alternating-offers framework, establishing the structural conditions under which these approaches converge. Determinants such as discount rates, exogenous breakdown risks, and the presence of inside and outside options are evaluated to quantify their relative impacts on bargaining power and the distribution of surplus. Beyond basic models, the investigation covers tactical maneuvers—including commitment devices, retractable offers, and “money burning”—while addressing the effects of asymmetric information on contractual efficiency. Dynamics of repeated bargaining situations are also explored, highlighting how intertemporal dependencies and reputation influence outcomes in long-term relationships. These theoretical constructs are applied across various institutional settings, from union-firm wage negotiations and bilateral monopolies to litigation settlements and intrafamily resource allocation. By isolating the procedural rules of interaction, the framework identifies specific frictions that result in costly delays or permanent disagreement, providing a unified methodology for analyzing the division of gains from cooperation. – AI-generated abstract.