THE POLICY BARGAINING MODEL

The policy bargaining model extends the alternating offer model and ca ptures situations in which two players interact strategically with eac h other over time and simultaneously negotiate for a binding joint pol icy to replace competition. The assumption of a non-linear Pareto fron tier causes several mathematical problems which are related to non-con vex bargaining problems. The necessary and sufficient conditions for u niqueness are derived and the set of subgame perfect equilibrium payof fs are fully characterized. For the prisoner's dilemma a folk theorem result is obtained. Another example shows that uniqueness is also poss ible.