Bargaining and Incentive Compatibility: A Pareto Frontier Approach.

Two agents negotiate, according to the Nash bargaining solution, over the allocation of a single (divisible) commodity (or multiple commodities with fixed ordinal preferences). It has been shown that in this situation agents find dominant to report their least risk averse utility functions. This result depends crucially on the fact that in this kind of "distortion game", agents have been restricted to report risk-averse utility functions. This paper studies the distortion game originated when agents are also allowed to claim non risk-averse utility functions. Contrasting with previous literature, we find multiple Nash equilibria, multiple payo outcomes and the existence of a first-mover advantage.