Incentive-efficient equilibria of two-party sealed-bid bargaining games

Consider a two-party bargaining problem in which each party has private value information. This paper derives a set of necessary and sufficient conditions for a strictly increasing equilibrium of a game in which bargaining takes place via a sealed-bid mechanism to be interim incentive efficient. In addition, this paper describes conditions under which an interim incentive efficient allocation can be realized via an equilibrium of a sealed-bid bargaining game that is also ex post individually rational. Ex post individual rationality guarantees that neither trader is ever made worse off by submitting a bid. (C) 1996 Academic Press. Inc.