Misrepresentation of utilities in bargaining: pure exchange and public good economies

Abstract

In order to analyze bargaining in pure exchange and public good economies when the agents are not informed about their opponents' payoffs, we embed each bargaining problem into a noncooperative game of misrepresentation. In pure exchange (public good) economies with an arbitrary number of agents whose true utilities satisfy a mild assumption, the set of allocations obtained at the linear-strategies Nash equilibria of this game is equal to the set of constrained Walrasian (Lindahl) allocations with respect to the agents' true utilities. Without this assumption, the result holds for two-agent pure-exchange economies and, under alternative assumptions, for public good economies.