Essentials of Bargaining Theory

Abstract

This chapter gives an introduction to essential concepts and models of two-person negotiations, i. e. bilateral bargaining theory. The main purpose is to provide necessary preliminaries for the subsequent chapters. However, it is deemed worthwhile to add to an already large literature an introduction which aims to combine mathematical precision with particular comprehensibility, and which for the first time presents a comprehensive history of thought that ranges from Edgeworth’s work in 1881 to most recent corroborations of classical predictions for bargaining by evolutionary models. Moreover, several results appear in more generality than is common or — to the author’s knowledge — for the first time. Recommended other introductions to bargaining theory are Osborne and Rubinstein (1990), Binmore, Osborne, and Rubinstein (1992), and Muthoo (1999). Familiarity with basic game theory is assumed, but the appendix to this book collects all game-theoretic concepts, notation, and results which are used.