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Kapeller, Jakob
Steinerberger, Stefan
Year of Publication: 
Series/Report no.: 
ICAE Working Paper Series 67
We study the classical bargaining problem and its two canonical solutions, (Nash and Kalai-Smorodinsky), from a novel point of view: we ask for stability of the solution if both players are able distort the underlying bargaining process by reference to a third party (e.g. a court). By exploring the simplest case, where decisions of the third party are made randomly we obtain a stable solution, where players do not have any incentive to refer to such a third party. While neither the Nash nor the Kalai-Smorodinsky solution are able to ensure stability in case reference to a third party is possible, we found that the Kalai-Smorodinsky solution seems to always dominate the stable allocation which constitutes novel support in favor of the latter.
Bargaining problem
Nash solution
Kalai-Smorodinsky Solution
Brownian motion
Feynman-Kac formula
partial differential equation
Document Type: 
Working Paper

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