Rubenstein Bargaining Solution
- What if there is no deadline? What if we allow for an
infinite number of steps? What is the solution then?
- Assume that 1's discount rate is d1 and 2's is
d2.
- Rubenstein's bargaining solution tells us that the
solution is for agent 1 to get (1 - d2)/(1 -
d1d2) and agent 2 gets the rest.
- This agreement will be reached on the first round.
- Proof:
Round |
1's share |
2's share |
Offerer |
t-2 |
1 - d2(1 - d1P) |
|
1 |
t-1 |
|
1 - d1P |
2 |
t |
P |
|
1 |
Offerer's maximal acceptable claims in a finite game.
- As the number of times goes to infinity the difference
between successive steps goes to 0, so we can say that P = 1 -
d2(1 - d1P) and solve for P.
José M. Vidal
.
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