## Abstract

Axiomatic bargaining theory (e.g., Nash's theorem) is static. We attempt to provide a dynamic justification for the theory. Suppose a judge or arbitrator must allocate utility in an (infinite) sequence of two-person problems; at each date, the judge is presented with a utility possibility set in ℝ_{+}^{2}. He/she must choose an allocation in the set, constrained only by Nash's axioms, in the sense that a penalty is paid if and only if a utility allocation is chosen at date T that is inconsistent, according to one of the axioms, with a utility allocation chosen at some earlier date. Penalties are discounted with t and the judge chooses any allocation, at a given date, that minimizes the penalty he/she pays at that date. Under what conditions will the judge's chosen allocations converge to the Nash allocation over time? We answer this question for three canonical axiomatic bargaining solutions-Nash, Kalai-Smorodinsky, and "egalitarian"-and generalize the analysis to a broad class of axiomatic models.

Original language | English (US) |
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Pages (from-to) | 289-310 |

Number of pages | 22 |

Journal | Theoretical Economics |

Volume | 6 |

Issue number | 2 |

DOIs | |

State | Published - May 2011 |

Externally published | Yes |

## All Science Journal Classification (ASJC) codes

- General Economics, Econometrics and Finance

## Keywords

- Axiomatic bargaining theory
- C70
- C78
- Dynamic foundations
- Judicial precedent
- K4
- Nash's bargaining solution