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Individual rationality and bargaining

By Abraham Diskin and Dan S. Felsenthal

Abstract

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
OAI identifier: oai:eprints.lse.ac.uk:24233
Provided by: LSE Research Online
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