Kalai-Smorodinsky Bargaining Solution and Alternating Offers Game

Abstract

This article presents an alternating offers game that supports a Kalai-Smorodinsky bargaining solution (KSS). It is well known that a solution to an alternating offers game has a breakdown point equivalent to a status quo that converges to its Nash bargaining solution because the probability of breakdown becomes negligible, whereas we show that a KSS is obtained if a breakdown gives everything to the player who rejects. The former option, which is adopted by many application papers may be suitable for ex ante production. However, the latter option should be more appropriate for ex post production, because players do not need to be concerned with cooperation.