Target-Based Solutions for Nash Bargaining

Abstract

We revisit the Nash model for two-person bargaining. A mediator knows agents' ordinal preferences over feasible proposals, but has incomplete information about their acceptance thresholds. We provide a behavioural characterisation under which the mediator recommends a proposal that maximises the probability that bargainers strike an agreement. Some major solutions are recovered as special cases; in particular, we offer a straightforward interpretation for the product operator underlying the Nash solution.

Keywords: cooperative bargaining, target-based preferences, Nash solution, egalitarian and utilitarian solutions, mediation, copulas.

JEL Classification: C78, D81, D74.