A NONCOOPERATIVE THEORY OF COALITIONAL BARGAINING

We explore a sequential offers model of n-person coalitional bargaining with transferable utility and with time discounting. Our focus is on the efficiency properties of stationary equilibria of strictly superadditive games, when the discount factor delta is sufficiently large; we do, however, consider examples of other games where subgame perfectness alone is employed. It is shown that delay and the formation of inefficient subcoalitions can occur in equilibrium, the latter for some or all orders of proposer. However, efficient stationary equilibrium payoffs converge to a point in the core, as delta --> 1. Strict convexity is a sufficient condition for there to exist an efficient stationary equilibrium payoff vector for sufficiently high delta. This vector converges as delta --> 1 to the egalitarian allocation of Dutta and Ray (1989).