Dynamics and axiomatics of the equal area bargaining solution (Q1972261)

The Equal Area bargaining solution in a two-person game, like the Super-Additive solution, depends on the entire Pareto optimal boundary, and thus on the whole feasible set. Both were introduced as improvements on the Nash bargaining solution and the bargaining solution of Raiffa, which depend only on a small neighborhood of the solution point, plus in the latter case the utopia point. The Equal Area solution picks the Pareto optimal point where the area of the individually rational part of the feasible set above the solution point is equal to the area to the right of that point. This paper presents an alternative formulation of the Equal Area solution based on a dynamical process describing the disagreement point set, intended to shed additional light on the underlying bargaining process. Instead of a discrete step by step bargaining process, the corresponding continuous process where the players make similar but infinitesimally small steps is considered. This process is found to converge to the Equal Areas bargaining solution. This formulation also leads to an axiomatic characterization of this solution.