Notes on the Impact of Wealth in Bargaining
Description
We provide the first investigation of the politically important question of whether wealthy individuals are advantaged or disadvantaged in bargaining. We show that in a simple Nash-Rubinstein style model, wealth is a disadvantage because it reduces boldness. We then develop a model in which consumption of wealth can occur independently of agreement over pie. We show that in this model, if there are no credit constraints, wealth has no impact on bargaining power. Credit constraints reduce bargaining power, however, and wealth can help to alleviate these. Finally we show that when income is perishable so it is impossible either to save or borrow, wealth is an advantage when it reduces absolute risk aversion.
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