Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/183254 
Year of Publication: 
2017
Series/Report no.: 
Working Paper No. 1716
Publisher: 
Johannes Kepler University of Linz, Department of Economics, Linz
Abstract: 
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.
Document Type: 
Working Paper

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