Strategic Effects and Incentives in Multi-issue Bargaining Games



ly2 1 and for λ > -+^^α^), lУ2 0. Let α > 1/3, then, since

о ι+α -1 Pα(1+α)- α < α+■.„.•. <1+p(1+α)
αα

the SPE demands are as defined in proposition 4, where the demand lxe1 and lye2
by player 1 and 2 respectively are such that the responder is indifferent between
accepting or rejecting the proposal so as to demand the entire surplus. ■

Similarly in agenda 2 where cake 2 is shared first the SPE is characterised by the
following proposition.

Proposition 5 In agenda 2, for 0, the SPE demands are as follows: if λ< 1,

λ(1-α)

1+α .


player demands the entire surplus, while player 2 demands a share ag2 ye2 =

If λ> 1, player 2 demand the entire surplus, while player 1 demands the share

x1 =
ag2  1


1α
(1+α)λ .


Proof. The solution of the indifferent conditions give demands:

ag2x1

ag2y2


(1 - δλ2)(1 - αδ2) + λ(1 - δ)(1 + αδ)
λ(1 + αδ)(1 - δ2)

(57)

(58)


λ(1 - δ)(1 + αδ) + (λ2 - δ)(1 - αδ2)
λ(1 + αδ)(1 - δ2)

These are SPE demands if they are in (0,1). At the limit for ∆ 0, the demands

ag2x1 and ag2y2 in (57) and (58) tends to sgn(1 - λ)and sgn(λ - 1)respectively.

This implies that the SPE demands in agenda 2 are as follows: if λ< 1, player 1

demands x1 = 1 while Player 2 demands a share equal to ag2ye2 where ag2 ye2 is such

29



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