Negotiations Ps

3. Arun and Beena are brother and sister negotiating over which sibling will get a family heirloom. The heirloom is “worth” $25 to Arun and $1 to Beena.

a. What are the Pareto efficient negotiation outcomes?

The two Pareto efficient outcomes are that either Arun or Beena get the family heirloom. Such an outcome would imply that each party cannot do better without making the other party worse off, indicating Pareto efficiency.

b. What are the Pareto efficient outcomes if you allow for monetary side payments, from Arun to Beena or from Beena to Arun?

Given the “worth” differential of $24, Pareto efficient outcomes in the case of monetary side payments would imply that Arun pay Beena anywhere between $1 and $25 to purchase the heirloom. Arun would receive the heirloom for <= his maximum willingness to pay. At such an allocation, neither party can do better without making the other party worse off. If he paid less than $1, then Beena could be better off just paying $1 for the heirloom. If he paid more, he could just choose not to receive the heirloom and be better off.

4. Union and Management

All allocations:

Union:

Low pension, low healthcare = 0

Low pension, high healthcare = 15

High pension, high healthcare = 20

High pension, low healthcare = 5

Management:

Low pension, low healthcare = 3

Low pension, high healthcare = 2

High pension, high healthcare = 0

High pension, low healthcare = 1

1. Management would ideally prefer to have low pension and low healthcare given that they would not incur any expenditure. The union, on the other hand, would ideally prefer to have high pension and high healthcare given that this would maximize their benefits.

Between pension and healthcare, the union values healthcare more, and management prefers providing low pensions to providing low healthcare.

Given these preferences, intuitively, the most efficient (but not equitable per se) outcomes would be for management to do low pension and low healthcare, or for the union to get high pension and high healthcare.

Graphically:

[pic 1]

The Pareto efficient outcomes are (low pension, high healthcare = 15, 2), (low pension, low healthcare = 0, 3) and (high pension, high healthcare = 20, 0). If we pick high pension, low healthcare, then the union could do better by choosing low pension, and management could also do better picking low pension. With the determined Pareto efficient outcomes, no party could do better without making the other party worse.

1. Now we have:

         [pic 2]

The outcomes for management are just scaled up by a factor of 10, but as we can see graphically, the Pareto efficient outcomes still remain the same. At these points, no party can be made better off without making the other party worse off.

5. Northstar / General Data Systems

a.

[pic 3]