Bargaining with indivisibilities

Abstract

We study bilateral bargaining with asymmetrical abilities to accept resources, resulting in a non-convex environment. Our primary focus is to examine whether efficient allocations are favored over wasteful equal splits. Our findings indicate a dominance of efficiency over equality: 70% of allocations are strongly efficient, with the majority (64%) corresponding to the Nash bargaining solution (NBS). Across treatments, a higher degree of inequality within the NBS leads to its poorer performance. Equal division accounts for 15% of outcomes, but its frequency drops to near zero when it is strongly Pareto dominated by the NBS. Notably, bargainers who face more constraints in accepting resources are more influential in steering allocations to match their social value orientation (SVO). • Divisibility rules introduce a non-convex bargaining environment, where participants have different flexibility in accepting payoff tokens. • Efficiency, particularly allocations aligning with the Nash Bargaining Solution (NBS), dominates over equality bargaining outcomes. • However, a higher degree of inequality makes the NBS less attractive. • Equal division remains common in bargaining outcomes, but its frequency drops significantly when the equal split is strongly dominated by the NBS. • The bargainer with more restrictive divisibility condition exerts stronger influence over bargaining outcome to match their social preferences.