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Perfect Equilibrium in a Bargaining Model

Ariel Rubinstein
Econometrica
Vol. 50, No. 1 (Jan., 1982), pp. 97-109
Published by: The Econometric Society
DOI: 10.2307/1912531
Stable URL: http://www.jstor.org/stable/1912531
Page Count: 13
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Perfect Equilibrium in a Bargaining Model
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Abstract

Two players have to reach an agreement on the partition of a pie of size 1. Each has to make in turn, a proposal as to how it should be divided. After one player has made an offer, the other must decide either to accept it, or to reject it and continue the bargaining. Several properties which the players' preferences possess are assumed. The Perfect Equilibrium Partitions (P.E.P.) are characterized in all the models satisfying these assumptions. Specially, it is proved that when every player bears a fixed bargaining cost for each period (c1 and c2), then: (i) if $c_{1} the only P.E.P. gives all the pie to 1; (ii) if $c_{1}>c_{2}$ the only P.E.P. gives to 1 only c2. In the case where each player has a fixed discounting factor (δ 1 and δ 2) the only P.E.P. is $(1-\delta _{2})/(1-\delta _{1}\delta _{2})$.

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