An Extension of the Nash Bargaining Problem: Introducing Time-Related Bargaining Costs
CFDP Revision Date
The Nash Bargaining is reformulated by introducing time-related costs into the von Neumann-Morgenstern utility functions of the parties. A set of mathematical requirements on the solution is satisﬁed uniquely by a function called the Extended Raiﬀa Solution. The properties of this function are investigated. It is shown to coincide with the Nash Cooperative Solution (of a related Bargaining Problem) when the parties have identical discount rates. An interpretation of the solution and of the formal requirements is detailed. In this model the ‘bargaining power’ of the parties is determined by the bargaining costs related to the duration of the negotiations.
Livne, Zvi A., "An Extension of the Nash Bargaining Problem: Introducing Time-Related Bargaining Costs" (1980). Cowles Foundation Discussion Papers. 786.