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Bargaining Problems
ich simplifies to I
=
17,000. (We get the same result by looking at Rose
ry's payoff.) In the end, the standard bargaining solution predicts that Jerry
I
Rosemary will agree to put him in charge of both the drama courses and
softball team
(x
=
1)
and pay him a salary of
I
=
17,000. This leads to
payoff!t1
=
24,000 for Jerry and !til
=
28,000 for Rosemary.
In a general bargaining problem, one can compute the standard bargaining
ution by using the following procedure. First, calculate the maximized joint
ue
v*
[by determining the value of
x
that maximizes
VI
(x)+v,(x)].
Second,
e that player
i
obtains the payoff
(I,
+][i
(v*

d
l

d,),
where
d
i
is player
i
's
ault payoff. Third, find the transfer
I
that achieves this split of the surplus.
ERCISES
Calculate the standard bargaining solution for the following variations of the
JerryRosemary example in this chapter. In each case, graph the bargaining
set, find the maximized joint value, determine the players' individual values,
and compute the transfer
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This note was uploaded on 08/20/2011 for the course ECON 101 taught by Professor Etw during the Spring '11 term at UniversitÃ di Bologna.
 Spring '11
 etw

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