A simple two-axiom characterization of the Nash solution

Abstract

The oldest and best-known cooperative bargaining solution concept is the Nash solution. Nash [2] characterized his seminal solution concept by using the axioms of ‘Independence of Irrelevant Alternatives’ (IIA), ‘Weak Pareto Optimality’ (WPO), ‘Symmetry’ (SYM), and ‘Scale Invariance’ (SI). Except for WPO, these axioms have been at the center of controversy (especially the most crucial axiom, IIA). This paper considers a new and simple axiom ‘Focal Relevance of a Pareto-optimal Midpoint’ (FRPM). It turns out that the Nash solution can be characterized by WPO and FRPM only.