Two-Person Bargaining when the Disagreement Point is Private Information

Abstract

We consider two-person bargaining problems in which (only) the disagreement outcome is private (and possibly correlated) information and it is common knowledge that disagreement is inefficient. We show that if the Pareto frontier is linear, the outcome of an ex post efficient mechanism cannot depend on the disagreement payoffs. If the frontier is non-linear, the result continues to hold when the disagreement payoffs are independent or there is a player with at most two types. We discuss implications of these results for axiomatic bargaining theory and for full surplus extraction in mechanism design.