Theories of the Bargaining Process

Alan Coddington

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351472265
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

A tour de force of theoretical reasoning, this book presents the most advanced analytical model of the bargaining process so far conceived. Focused essentially on the dynamics of the bargaining process, Coddington's model employs elements of several conceptual constructs--individual decision-making, theories of expectations and their adjustment, and environment concepts--to explain the nature of consistency in a bargainer's system of expectations and intentions.The book begins with a description of the bargaining process in an economic context and establishes an analytical framework. There follows a critical survey of bargaining theory in which the author selects those concepts, which he finds most valid and most applicable to his decision-making/expectation/adjustment model. The internal consistency of a wide class of bargaining models is then examined in a chapter on the relationship between decision-making and expectations. Since the theory of games has been used as a basis for bargaining process theory, the author devotes a chapter to an examination of the game-theoretic approach and an assessment of its value relative to his own approach.The author concludes with a study of the specific capabilities of his own analytical model, with discussion of the possible combinations of assumptions with which the investigator may work. Although stemming from a problem in economic theory and of immediate intent to economists, the book's contribution to the general theory of conflict process and interdependent decision-making make it an important study for students of politics and international affairs as well as management and labor relations specialists.

Chapter II
A BRIEF SURVEY OF BARGAINING THEORY

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1 INTRODUCTION

In discussing theories of bargaining it is useful to make explicit the purpose which one expects such theories to serve. Criticism of the theories then revolves around their ability to serve this purpose. The purpose can be conveniently expressed by a list of questions to which the theories may be expected to provide answers. The present position is embodied in the following list.¹

(1) What agreement (if any) is likely to result from the bargaining ?

(2) What are the factors which play an important part in determining, or influencing, the outcome of the process ?

(3) Given the initial conditions, what will be the course of developments which leads either to an agreement or to a breakdown of the negotiations ?

(4) What distinguishes those conditions under which an agreement of some form is likely to occur from those under which a breakdown of the negotiations is likely ?

(5) Supposing there is, in answer to question 1, an equilibrium outcome, under what conditions will this be stable and under what conditions unstable ? We realise that there are a number of possible senses of stability.² Here we will consider stability in the following sense : an equilibrium outcome f¯ is stable if the solution f(T) satisfies the condition

(2.1) Lim T→∞.f(T)=f¯⁢

irrespective of the initial conditions. This is what Samuelson calls ‘perfect stability of the first kind’.¹

The existing theories of bargaining will now be considered in relation to these questions. It will become quite manifest that most writers have been interested in finding answers to questions 1 and 2. Little concern has been shown in the search for answers to questions 3, 4 and 5. (Cross is the notable exception here, as will be seen.)

2 EXISTING THEORIES

How do existing theories explain the very general phenomena associated with the bargaining process? We shall review this question by starting with theories involving the smallest number of variables and adding, as we proceed, new variables which represent further factors assumed to affect the workings of the process.

Fig. 2.1

Suppose we have two utility functions u₁ and u₂ upon which is imposed a constraint expressed by the welfare frontier g(u₁,u₂) = 0. There is also a point of disagreement, ū₁, ū₂, which we suppose lies below and to the left of the welfare frontier. This is shown in Figure 2.1. The two individuals may experience any pair of utilities below and to the left of the welfare frontier AD but if they cannot agree on the point at which to settle they will experience the pair ū₁, ū₂. We shall now proceed to review a number of theories which have been developed within this framework.

A Edgeworth

Edgeworth’s theory,¹ thus formulated, would give as a solution the entire section of the welfare frontier BC for which ū₁, ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Foreword
• Contents
• Preface
• I The General Framework
• II A Brief Survey of Bargaining Theory
• III Closed Loops
• IV The Relationship Between Decision-Making And Expectations
• V Different Approaches to A Theory of Bargaining
• VI Further Developments
• Bibliography
• Index