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Testable Implications of Bargaining Theories

Chambers, Christopher P. and Echenique, Federico (2011) Testable Implications of Bargaining Theories. Social Science Working Paper, 1348. California Institute of Technology , Pasadena, CA. http://resolver.caltech.edu/CaltechAUTHORS:20160322-142103902

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Abstract

We develop the testable implications of well-known theories of bargaining over money. Given a finite data set of bargaining outcomes, where utility functions are unknown, we ask if a given theory could have generated the observations. When the data come with a fixed disagreement point, we show that the Nash, utilitarian, and the egalitarian max-min bargaining solutions are all observationally equivalent. These theories are in turn characterized by a simple test of comonotonicity of bargaining outcomes. When the disagreement point is allowed to vary, we characterize the testable implications of the equal gain/loss egalitarian solution. The main application of our result is to testing the tax code for compliance with the principle of equal loss. For other theories, we introduce a general method based on the study of real solutions to systems of polynomial inequalities.


Item Type:Report or Paper (Working Paper)
Additional Information:June 2011.
Group:Social Science Working Papers
Subject Keywords:Revealed Preference, Nash Bargaining, Utilitarian Solution, Egalitarian Solution
Classification Code:JEL C71,C78
Record Number:CaltechAUTHORS:20160322-142103902
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20160322-142103902
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:65598
Collection:CaltechAUTHORS
Deposited By: Katherine Johnson
Deposited On:22 Mar 2016 21:25
Last Modified:22 Mar 2016 21:25

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