Rational Bargaining Research Articles

The power of outside options in the presence of obstinate types

We experimentally investigate the role of two-sided reputation-building in dynamic bargaining. In the absence of outside options, rational bargainers have an incentive to imitate obstinate types that are committed to an aggressive demand, inducing delay. Outside options remove this incentive and ensure immediate agreement whenever two rational bargainers match. Our data support the hypothesis that outside options cut down on imitation and ensure timely agreements, but only if subjects share a belief about what constitutes obstinacy. Further, we find that outside options are exercised excessively and that efficiency is no better than it is in their absence. We ascribe this result to the presence of fairness preferences in the subject pool.

Mediation in Reputational Bargaining

Can an uninformed mediator improve outcomes in a dynamic reputational bargaining model? I show that a simple communication protocol used by professional mediators, of announcing an agreement only if both parties privately accept its terms, can increase the payoffs of rational bargainers, but only if communication is noisy: the mediator must sometimes fail to suggest a deal even when both bargainers accept it. (JEL C78, D74, D83)

A Theory of Contestation Space in International Regimes

In a time of uncertainty in the international order, scholars of international relations are directing increased attention to both systemic power transitions and contestation of global norms and institutions. Although similar real-world dynamics are motivating both of these scholarly trends, there has been little cross-pollination among scholars studying power at a systemic and structural level and those studying power at a normative and discursive level. This paper merges insights from these literatures to explain how states’ contestation of the normative components of the international order shapes global politics during times of power transition. It does so by introducing the theoretical concept of contestation space in international regimes. This concept modifies a basic rational choice bargaining model to depict how new equilibria regimes are formed under conditions of contestation over the principles, norms, rules, and decision-making procedures that compose international regimes. The theoretical concept of contestation space shows how ambiguity, omission, and contradiction in complex international agreements make room for contested understandings of bargaining outcomes. This contestation space facilitates the establishment of new equilibria in international regimes, but it can also act as a source of misperception and conflict during power transitions. This theory thus contributes to a burgeoning research program in the study of realpolitik that analyzes the broad range of instruments of power states employ and emphasizes the ways that hierarchy operates in international relations.

Bargaining model of labor disputes considering social mediation and bounded rationality

Due to the characteristics of bounded rationality for labor dispute mass emergencies in China, the Perles−Maschler (M−P) solution is applied to analyze the bargaining process between the employer and the employees. Considering that social mediation is a treatment method for labor dispute mass emergencies with Chinese characteristics, this paper compares the Nash solution for social mediation, the Kalai−Smorodinsky (K−S) solution for rational bargaining based on bargaining power, and the M−P solution for bounded rationality search. The results show that the final outcome for labor disputes not only depends on the different treatment models but also has the feature of “path dependence”. The Nash solution for social mediation can reach an outcome that benefits both the employees and the employer. By taking advantage of the social mediation in labor−capital conflicts and building a three-party mechanism for labor unions to take part in the negotiation, we can obtain a win−win outcome that can maintain both the employees’ benefits and rights, and the employer's productivity as well.

Role Bargaining Strategies for China’s Peaceful Rise

The bargaining for a new role in world politics presents a rising power with a strategic dilemma, as the new role entails a new power position in the system and a new social status in international society. China’s assertiveness in diplomacy after 2008 can be seen as a ‘role bargaining’ process between China and the outside world, such as China’s bargaining for a new role in the global financial system through the Asian Infrastructure Investment Bank (AIIB). This article aims to examine how a rising power can bargain for the new role in a peaceful way. Based on rational bargaining theory and on role theory, we suggest four strategies whereby a rising power bargains for a new role: costly signalling, selfrestraint, role-diversification, and alter-casting. Through focusing on China’s World Trade Organization accession and integration into the global economy after the Cold War, we examine the utilities and limitations of these four rolebargaining strategies for a rising power in the international system. The first two strategies aim to address the information and commitment problems concomitant with rationalism that a rising power faces in negotiating a new power position, and the last two strategies focus on how a rising power can bargain for a new social role by balancing the self’s role conception and the role expectations of others.

Rational bargaining in games with coalitional externalities

This paper provides a flexible strategic framework to analyze bargaining and values in environments with coalitional externalities. Within this framework we propose a new value that extends the Shapley value to partition function form games, the so-called Rational Belief Shapley (RBS) value. We investigate the strategic foundation of the RBS value by constructing an implementation mechanism. This mechanism extends existing models of multilateral bargaining by allowing players a higher degree of freedom to form coalitions. The same framework of bidding and renegotiation allows for natural variations of the RBS-mechanism. In this way, alternative “Shapley-like” values are obtained, and a unified platform to analyze and compare these solutions is provided.

Narratives, norms and governability in the European Union: an introduction

ABSTRACTThis collection highlights the challenges of policy co-ordination at both the national and European level. Several contributions highlight efforts to improve overall performance under the guise of efficiency and economy of legislative outcomes that can generate some of the same problems of accountability, transparency and legitimacy facing governing coalitions. Given the increasing importance of global governance, additional contributions also illustrate how the European Union (EU) exercises leverage through rational calculation and bargaining and ideational approaches, which can generate differential levels of adherence to the regulatory power of the EU, suggesting varied interpretations about the nature and reception of European integration in a wider global context.

Book Reviews

Cade Massey of University of Pennsylvania reviews, “Schelling's Game Theory: How to Make Decisions” by Robert V. Dodge. The EconLit abstract of this book begins: “Explores Thomas Schelling's contributions to the field of rational strategic analysis and game theory, focusing on content from his Harvard University course on rational choice, bargaining, and strategy. Focuses on the Schelling approach to strategic thinking and decision making; strategies and tactics; models as metaphors for what decisions do; the prisoner's dilemma, competition, and cooperation; individual decisions and group agreement; decisions that mix and sort populations and decisions based on randomization; and a case study of the Cuban Missile crisis. Dodge is retired from teaching social studies at the Singapore American School. Index.”

Coleman on Gap-Filling and Default Rules

Critics of consent theorists of contract have argued that autonomy-based theories of contract law do not provide any guidance in understanding how courts do or should decide cases when an issue on which the parties have not explicitly agreed upon arises. In Risks and Wrongs, Jules Coleman takes the challenge of rescuing the consent theorist from this attack. He defends a rational bargaining approach to gap-filling and default rules in contract law. In this comment, I pose a challenge to Coleman´s argument. Against his view, I suggest that, in order to solve many of the disputes between the parties to a contract regarding contingencies for which no explicit adequate provisions have been made ex ante in the parties´ agreement, the consent theorist need not resort to the ex ante rational contract. Coleman´s argument is based on the assumption that, whenever the parties do not explicitly agree on something, the relevant issue falls into a contractual gap. My claim is that not everything should be explicit in order for the parties to a contract to be able to understand what the terms of their agreement might be. My argument relies on – what I will call - a “public” conception of consent. In light of such an account of consent, the consent of the parties covers more than what the parties actually included or mentioned in their agreement. The paper concludes by suggesting that Coleman´s argument is relevant in those cases where implied-in-fact understandings are vague and courts have no option but to stipulate terms into the contract.

From Individual Responsibility to 'Shared' Social Responsibilities: Concepts for a New Paradigm

Shared social responsibility will shortly become a new basic concept for understanding social cohesion in Europe and also for the modeling of governance structures and management of social cohesion policies involving the public sector, the private profit and non profit sectors , and also the citizens’ participation in deliberating and implementing such policies. It will also include corporate social responsibility as a special case. In this paper the need for sharing social responsibility is discussed with reference to the failed neo-classical and neo-liberal separation between social responsibilities allocated to the State and the minimal individual responsibility of efficient recourses allocation assigned to private agents operating throughout the market, consistently with their self-interested incentives. Then foundation of sharing social responsibility is discussed by considering the challenges of the new paradigm with respect to satisfaction of conditions required for the basic definition of responsibility. Moreover typical paradoxes of collective action like as the Prisoners’ Dilemma and the Free Rider problem are considered, as far as they can give some basis to disclamations of shared responsibilities. Here a solution based on Bacharach's “We thinking and team reasoning is suggested, but also it is raised the question of how hardly it can work in a context of multi-stakeholder interaction, with huge differences among the stakeholders' interest and claims: need based claims, merit based claims and externality based claims (i.e. claims of redress for negative externalities). And also huge unbalances of power and influence, differentiating strong from weak stakeholders. Asking the question of how an agreement can be reached on an ordering of the stakeholders’ different claims – respectful of the most urgent claims staked by the worst-off -, a social contract model is outlined. A two steps constitutional contract provides in fact the proper ordering of the stakeholders’ different claims. At a basic constitutional level, the social contract grants priority to the worst-off in terms of distribution of primary goods and capabilities proportional to relative needs, which also can be reached through a rational bargaining solution (agreement) under appropriate assumptions. Then both merit claims and externalities are accounted for in the stage of post-constitutional agreements. Each stakeholder stakes a claim in terms of merit (equivalent to his/her contribution to the joint production of social wealth through firms and organisations), which is conditioned on his/her endowment of basic rights which have to be proportional to relative needs and neutralised from the effects of talents. Hence what any stakeholder may claim to deserve corresponds to what s/he needs under the additional condition of carrying out an active effort employing endowments of primary goods and capabilities proportional to her/his needs. Moreover, no one may claim to deserve his/her market remuneration in case it is obtained through participation to productive enterprises if these activities also entail negative externalities on commons and public goods maintenance, which change the basic allocation of these goods with respect to relative needs.

Exclusion from the social contract

Does rational bargaining yield a social contract that is efficient and so inclusive? A core allocation, that is, an allocation that gives each coalition at least as much as it can get on its own, is efficient. However, some coalitional games lack a core allocation, so rationality does not require one in those games. Does rationality therefore permit exclusion from the social contract? I replace realization of a core allocation with another type of equilibrium achievable in every coalitional game. Fully rational agents coordinate the pursuit of incentives so that equilibria of this type are efficient. They adopt a social contract that is efficient and inclusive.

The (Stabilized) Nash Bargaining Solution as a Principle of Distributive Justice

It is argued that the Nash bargaining solution cannot serve as a principle of distributive justice because (i) it cannot secure stable cooperation in repeated interactions and (ii) it cannot capture our moral intuitions concerning distributive questions. In this article, I propose a solution to the first problem by amending the Nash bargaining solution so that it can maintain stable cooperation among rational bargainers. I call the resulting principle thestabilized Nash bargaining solution. The principle defends justice in the form ‘each according to her basic needs and above this level according to her relative bargaining power’. In response to the second problem, I argue that the stabilized Nash bargaining solution can serve as a principle of distributive justice in certain situations where moral reasoning is reduced to instrumental reasoning. In particular, I argue that rational individuals would choose the stabilized Nash bargaining solution in Rawls’ original position.

A Social Contract Account for CSR as an Extended Model of Corporate Governance (I): Rational Bargaining and Justification

This essay seeks to give a contractarian foundation to the concept of Corporate Social Responsibility (CSR), meant as an extended model of corporate governance of the firm. It focuses on justification according to the contractarian point of view (leaving compliance and implementation problems to a related article, [Sacconi 2004b, forthcoming in the Journal of Business Ethics]). It begins by providing a definition of CSR as an extended model of corporate governance, based on the fiduciary duties owed to all the firm’s stakeholders. Then, by establishing the basic context of incompleteness of contracts and abuse of authority, it analyses how the extended view of corporate governance arises directly from criticism of the contemporary neo-institutional economic theory of the firm. Thereafter, an application of the theory of bargaining games is used to deduce the structure of a multi-stakeholder firm, on the basis of the idea of a constitutional contract, which satisfies basic requirements of impartial justification and accordance with intuitions of social justice. This is a sequential model of constitutional bargaining, whereby a constitution is first chosen, and then a post-constitutional coalition game is played. On the basis of the unique solution given to each step in the bargaining model, the quest for a prescriptive theory of governance and strategic management is accomplished, so that I am able to define an objective-function for the firm consistent with the idea of CSR. Finally, a contractarian potential explanation for the emergence of the multi-fiduciary firm is provided.

A Social Contract Account for CSR as Extended Model of Corporate Governance (Part II): Compliance, Reputation and Reciprocity

This paper is the second of a two parts essay aimed at giving a contractarian foundation to the concept of Corporate Social Responsibility (CSR), meant as an extended model of corporate governance of the firm. The first part has been focused on rational bargaining and justification. Here, on the contrary, I am focused over the implementation and compliance domain. First this domain is defined in terms of the relevant game theoretical model, which is required to represent ex post implementation of an ex ante agreed contract and must be able to account for the self-enforceability of institutions resulting from the social contract. The model of reputation games, with reference to the basic game of trust, is introduced in order to make sense of self-regulation as a way to implement the social contract over the multi-fiduciary model of corporate governance. This allows understanding why self-regulation, meant as the mere resort to a long-run strategy in a repeated game of trust, fails in making sure the reputation of the firm when the game is surrounded by incomplete contracts and unforeseen contingencies. Hence, two basic problems for the functioning of the reputation mechanism are faced: the cognitive fragility problem, and the motivational problem in turn. As far as cognitive fragilities of reputation (resulting from impact of unforeseen contingencies and bounded rationality) are concerned, the paper elaborates upon the idea of proper self-regulation, based on explicit norms, and develops the logic and the structure that these self-regulatory norms must satisfy if they have to serve as a gap-filling tool for the remedy of cognitive limitations in the reputation mechanism. This coincides with an ethical decision procedure employing fuzzy logic and default reasoning. Then, a motivation problem emerges from the possibility of sophisticated abuse on the part of the firm, employing equilibrium mixed strategies in the repeated trust game. Here an entirely new application of the theory of conformist preferences is developed as an approach to the problem of the motivational role played by business ethics norms. This section answers the real life question raised about stakeholder' activism and why they do not acquiesce to sophisticated abuse by the firm. The result derives from straightforward calculation of stakeholders' overall utilities and equilibrium strategies under the hypotheses of conformism-and-reciprocity-based preferences and overall utility functions.

A Social Contract Account for CSR as Extended Model of Corporate Governance (Part I): Rational Bargaining and Justification

This paper is the first part of a two parts essay aimed at giving a contractarian foundation to the concept of Corporate Social Responsibility (CSR) meant as an extended model of corporate governance of the firm. I fist present the heuristics of the scientific program meant to theorizing over an institution like a system of corporate governance, which is partitioned in two domains, the justification domain and the compliance domain. Bargaining theory, reputation game and reciprocity theories, as distinct pieces of game theory, are the main theoretical tools employed in developing the answer to the relevant questions in the two domains respectively. The first part focuses over justification according to the contractarian point of view. At start, a definition of CSR as an extended model of corporate governance, based on the fiduciary duties owed to all the firm's stakeholders, is given. Then, by setting the basic context of incompleteness of contracts and abuse of authority, I analyze how the extended view of corporate governance directly arises form within the criticism of contemporary neo-institutional economic theory of the firm. Hence, from an application of the theory of bargaining games, the structure of a multi-stakeholder firm based on the constitutional contract theory is deduced, which satisfies the basic requirements of a justification in the contractarian approach. This is a sequential model of constitutional choice, where at the first step a constitution is chosen and then a post-constitutional coalition game is played. Both the games are solved in terms of the proper cooperative bargaining and coalition game solution concept, and results are interpreted not only according to the perspective of the theory of rational bargaining, but also as an impartial solution, starting form a fair status quo and corresponding to reasonable intuitions on distributive justice. On these basis the inquiry for a prescriptive theory of governance and strategic management - able to overcome the criticism raised against the lack of determination and unicity of a multi-stakeholder model of corporate governance and strategy - is answered, so that I am able to define an objective function for the firm consistent with the idea of CSR as a model of governance. At last, the paper tells the contractarian story, which can be taken as a potential explanation of the firm, of how the multi-fiduciary corporation may emerge from the first and the second social contract, as a firm endowed with the typical structure of control, but constrained by CSR obligations that those who in the firm hold a position of authority owe to all the non controlling stakeholders.

Declension and Construction Themes in the Study of Labor Politics in the United States

The precipitous decline in collective bargaining between employees and employers during the last twenty-five years of the twentieth century in the United States should tell us something useful about American political development. The decline of collective bargaining is about more than waning union influence or competitive conditions in the labor market because collective bargaining was the primary expression of the regime established by the New Deal Democratic Party electoral coalition. For a generation, labor-management bargaining epitomized empowered liberal democracy which, acting through the legislative branch, established a new legal regime of industrial order. The National Labor Relations Act of 1935 (NLRA) shaped a pluralist industrial order by creating new rules that curbed the authority of managers and compelled business firms to participate with unions in a process of rational bargaining based on the assumption of competing employee and employer interests.I do not mean to suggest that the place of collective bargaining was uncontested. Scholars, however, launched major efforts in the 1950s and 1960s to understand how “industrial relations” fit into the emerging conception of pluralism. This was an important effort because union-management relations were central to the New Deal Democracy. For example, John Kenneth Galbraith, American Capitalism (New York: Houghton Mifflin, 1956); Robert Dahl and Charles Lindblom, Politics, Economics and Welfare: Planning and Politico-Economic Systems Resolved into Basic Social Processes (New York: Harper and Row, 1953); Clark Kerr, Labor Markets and Wage Determination: The Balkanization of Labor Markets and Others Essays (Berkeley: University of California Press, 1977); Clark Kerr, John T. Dunlop, Frederick Harbison, and Charles A. Myers, Industrialism and Industrial Man: The Problems of Labor and Management in Economic Growth (Cambridge, MA: Harvard University Press, 1960); Grant McConnell, Private Power and American Democracy (New York: Knopf, 1966); J. David Greenstone, Labor in American Politics (New York: Vintage, 1969). By the mid-1960s, industrial relations was a rare topic for political science investigation; aside from Greenstone, political science conceived “labor” and “work” to be “private interests” and not a matter of political significance. Yet collective bargaining is no longer the focal point for industrial relations, and industrial relations no longer occupies the center of governing attention. The various reasons for this trend have attracted significant scholarly attention; however, the issue is confounded by arguments that union decline is a wrongly conceived topic to investigate.

Strikes as Sequences of Interaction

Theories of strikes—or any kind of conflict—are theories of interaction. Marxists envisage class conflict as a dialectical struggle between proletariat and bourgeoisie. Neoclassical economists imagine strikes as an unintended consequence of bargaining between rational actors.The tumult of class conflict is far removed from the quiet of rational bargaining, yet these theories are alike in this respect: strikes ensue from dyadic interaction. Adding political authorities to the dyad of workers and employers extends interaction to three sets of actors.

Bargaining and strikes: Towards an evolutionary framework

Conventional models of strikes start with the assumption that the bargainers' uniquely rational beliefs can be worked out in advance. Strikes are then explained as either the result of institutional constraints or of the possibility of irrationality. By contrast the evolutionary approach begins with a recognition that bargaining is naturally indeterminate and that, in the absence of a unique model of rational bargaining, conflict-free agreements between rational trades unions and firms reflect the evolution of one out of many possible conventions. This paper explores the alternative interpretation of strikes afforded by this perspective. In particular, it shows how strikes help shape the dispositions of bargainers (as opposed to just revealing it), how periods of conflict are succeeded by periods of industrial peace (and vice versa), and how the stability of bargaining protocols depends not only on the conventions regulating the relations between unions and firms but also on those between workers and union leaders as well as on technological innovations.

A Dynamic Model of the French Economy, with Rational Expectations, Monopolistic Competition and Labour Market Bargaining

This paper describes a small dynamic model of the French economy in a situation of imperfect competition on all markets, with some nominal rigidity and part of households facing a liquidity constraint. Economic agents optimise over time. One of the features of this model is that the labour market is modeled in some detail. Dynamic and long-term multipliers are computed, under rational expectations, for changes in fiscal, para fiscal and budgetary policy, for alterations to the environment of France, and for structural shocks. These multipliers are given economic interpretation.

‘Black card’ or rational bargaining strategies? On the difficulties involved in mastering technology effects by means of interactive processes

Abstract The present paper has two objectives in mind: On the one hand, it attempts to present and clarify the attitudes of the Austrian population on ecological issues. On the other hand, its second objective is to explicate, via a documentation and discourse analysis of a discussion on the ‘social compatibility’ of the location of radioactive waste disposal sites, how the notion of ‘social impact assessment’ ought to be interpreted as a strategic game among social actors, revolving around the poles of conflict and rational concensus‐building.