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Games 2015, 6(2), 161-174; doi:10.3390/g6020161

A Tale of Two Bargaining Solutions

Department of Economics, Bilkent University, 06800 Çankaya-Ankara, Turkey
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Academic Editor: Bahar Leventoglu
Received: 20 April 2015 / Revised: 3 June 2015 / Accepted: 15 June 2015 / Published: 19 June 2015
(This article belongs to the Special Issue Bargaining Games)
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Abstract

We set up a rich bilateral bargaining model with four salient points (disagreement point, ideal point, reference point, and tempered aspirations point), where the disagreement point and the utility possibilities frontier are endogenously determined. This model allows us to compare two bargaining solutions that use reference points, the Gupta-Livne solution and the tempered aspirations solution, in terms of Pareto efficiency in a strategic framework. Our main result shows that the weights solutions place on the disagreement point do not directly imply a unique efficiency ranking in this bargaining problem with a reference point. In particular, the introduction of a reference point brings one more degree of freedom to the model which requires also the difference in the weights placed on the reference point to be considered in reaching an efficiency ranking. View Full-Text
Keywords: aspiration points; bargaining problem; endogenous disagreement points; reference points aspiration points; bargaining problem; endogenous disagreement points; reference points
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Karagözoğlu, E.; Keskin, K. A Tale of Two Bargaining Solutions. Games 2015, 6, 161-174.

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