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Individual rationality and bargaining

By Abraham Diskin and Dan S. Felsenthal


We argue that Nash’s solution to the bargaining problem should be modified such that it will be based on a New Reference Point (NRP). Such a point is needed so that a player is not considered ‘individually rational’ if he accepts an agreement that provides him with a utility lower than the minimal utility he can derive from any Pareto optimal agreement, or if he accepts an agreement that provides him a utility lower than the one he can obtain by unilateral action. The employment of such NRP requires modifying two axioms and hence leads to a new proposed solution

Topics: HB Economic Theory
Publisher: Springer
Year: 2007
DOI identifier: 10.1007/s1112700792127
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Provided by: LSE Research Online
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