INSTITUTE OF MATHEMATICAL ECONOMICS

Matthias G. Raith

Working-Paper No. 299

June 1998

Abstract

In this paper we characterize an intuitive method for implementing cooperative bargaining solutions in multi-issue negotiations. We illustrate our approach with an example of a marketing negotiation where parties' balance of power is determined by a reference point within the bargaining set. The procedure is a generalization of the fair-division algorithm `Adjusted Winner,' introduced by Brams and Taylor (1996). The technique consists of two fundamental steps: Negotiators first focus on joint utility maximization. In a second step they establish the desired balance of power through efficient transfers. Due to its tractability and the fact that it does not require computer support, the algorithm provides an argumentative basis for the complete negotiation process.

Keywords: Bargaining, Reference points, Adjusted Winner