One-dimensional bargaining (Q550197)

This paper analyzes a model of multilateral bargaining over social outcomes represented by the points in the unit interval. The bargaining procedure is as follows. At the beginning of each period, nature randomly selects one of the players as a proposer. (The probability for a given player to become a proposer is assumed to be the same in each period.) The chosen player makes a proposal consisting of one alternative. All other players then either accept or reject the proposal. Then, the proposal passes if and only if the group of players that accept the proposal is a so-called decisive coalition. (This is referred as an acceptance rule.) In the case when the proposal passes each player receives a discounted utility of the implemented alternative. Otherwise, a new period begins. Each player's utility function is concave, continuous, and has a unique peak. The author studies the induced game and its subgame perfect equilibria in stationary strategies. Here, stationarity means that 1) a proposal of any player does not depend on the history of play and 2) any player's reaction to a proposal only depends on the proposal. Thus, a stationary strategy of player \(i\) consists of a proposal \(x_i\) and an acceptance set \(A_i\). Given a strategy profile, an alternative is in the social acceptance set \(A\) if and only if there exists a decisive coalition whose members all accept the alternative. The focus of the paper is on the asymptotic behavior of stationary subgame perfect equilibria as the discount factor approaches one (i.e., as the players become infinitely patient). The author first establishes that along any convergent sequence of bargaining equilibria, as the discount factor converges to one, the social acceptance set collapses to a point (Theorem 3.6). This result also follows from Banks and Duggan (2000, Theorems 3 and 5). Next, the author introduces the characteristic function and shows that its unique generalized zero point is an element of the social acceptance set of each bargaining equilibrium for each discount factor in the open interval \((0,1)\) (Theorems 4.6 and 4.7). Hence, the generalized zero of the characteristic function is the unique limit of any convergent sequence of bargaining equilibria. Section 5 focuses on the implications of the main results assuming that the family of utility functions is symmetric in the following sense: first, each player's utility function is symmetric around its peak; second, the utility function of a player can be obtained from that of any other player through a horizontal shift. Section 6 considers a model where each player \(i\)'s discount factor is given as a function \(f_i\) of some parameter \(\delta\). The functions \(f_i\) are assumed to satisfy a regularity condition. Then, it is no longer true that the generalized zero of the characteristic function is an element of the social acceptance set in each equilibrium of the game corresponding to \(\delta\). However, the limit of bargaining equilibria is still unique and coincides with the (unique) generalized zero of the characteristic function (Theorem 6.2).