Consider a bargaining problem with two agents 1 and 2. There is a prize of $1...
Consider a bargaining problem with two agents 1 and 2. There is a prize of $1 to be divided. Each agent has a common discount factor 0 < δ < 1. There are two periods, i.e., t ∈ {0,1}. This is a two period but random symmetric bargaining model. At any date t ∈ {0,1} we toss a fair coin. If it comes out “Head” ( with probability p = 21 ) player 1 is selected. If it comes out “Tail”, (again with probability 1 − p = 12 ), player 2 is selected. The selected player makes an offer (x,y) where x, y ≥ 0 and x + y ≤ 1. After observing the offer, the other player can either accept or reject the offer. If the offer is accepted the game ends yielding payoffs (δtx,δty). If the offer is rejected there are two possibilities:
- if t = 0, then the game moves to period t = 1, when the same procedure is repeated.
- if t = 1, the game ends and the pay-off vector (0, 0) realizes, i.e., each player gets 0.
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Consider a bargaining problem with two agents 1 and 2. There is
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