A Theory of Agreements in the Shadow of Conflict

• Authors: Joan-Maria Esteban.
• BSE Working Paper: 1255 | September 15
• Keywords: conflict , bargaining , disagreement
• JEL codes: C78, D74
• conflict
• bargaining
• disagreement

We present a novel approach to N-person bargaining, based on the idea that the agreement reached in a negotiation is determined by how the direct conflict resulting from disagreement would be resolved. Our basic building block is the disagreement function, which maps each set of feasible outcomes into a disagreement point. Adding this function to the description of a bargaining problem, a weak axiom based on individual rationality leads to a unique solution: the agreement in the shadow of conflict, ASC. This agreement may be construed as the limit of a sequence of partial agreements, each of which is reached as a function of the parties’ relative power in the disagreement scenario. We provide a non-cooperative implementation as well.