Bargaining toward Pareto-Efficiency: Relative Gains, Simultaneity and the Case of South Tyrol

Abstract

ABSTRACT Building on bargaining theory literature, I outline an original rationalist model that takes in consideration the problem of relative gains to explain why bargaining failures may lead to escalation in an open civil war and when negotiations in civil disputes are more likely to lead to Pareto-efficient solutions. I apply the model to the South Tyrol case, a relatively unknown identity-based dispute that emerged in Italy in the aftermath of the Second World War and was defused before it could produce a real escalation in violence. I show that direct and indirect compensations may help to overcome the problem of issue indivisibility, and that third-party intervention in domestic disputes may work as a functional substitute for simultaneity between the agreement and the enforcement phase.