Bargaining with linked disagreement points

Abstract

In the context of bilateral bargaining, we deal with issue linkage by developing a two-issue-two-players cooperative bargaining model. The axioms we propose focus on the role of the disagreement points. A family of bargaining rule stands out: the monotonic equal net ratio solutions. These solutions point to Pareto efficient outcomes such that the relative gains for players are equal across issues and reward the players for improving their bargaining power over each issue. We discuss our results in light of international trade and environmental negotiations, which are often put on the bargaining table in a linked fashion.