Comparing Bargaining Solutions in the Shadow of Conflict: How Norms against Threats Can Have Real Effects

In many economic environments agents make costly and irreversible investments that may enhance their respective threat payoffs but also shrink the utility possibilities set. In such settings, with variable threats and a variable utility possibilities set, it becomes possible to rank different bargaining solutions in terms of efficiency. We compare bargaining solutions within a class in which the influence of the threat point on the bargaining outcome varies across solutions.

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