Non-Cooperative Bargaining Theory: An Introduction

Abstract

The paper provides an informal introduction to some of the main themes of the recent literature on “non-cooperative” or “sequential” bargaining models. It focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by “Nash bargaining theory” It illustrates the new insights offered by the non-cooperative approach, by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome. Finally, the difficulties which arise in extending this analysis to two-person bargaining with incomplete information, and to n-person bargaining, are discussed. This is a revised version of the fourth Review of Economic Studies Lecture presented in April 1985 at the joint meeting of the Association of University Teachers of Economics and the Royal Economic Society held in Oxford. The choice of lecturer is made by a panel whose members are currently Professors Hahn, Mirrlees and Nobay, and the paper is refereed in the usual way.