Coalitional Bargaining with Consistent Counterfactuals

We propose a new solution concept for TU cooperative games in characteristic function form, the SCOOP, that builds on the Nash Bargaining Solution (NBS ), adding to it a consistency requirement for negotiations inside every coalition. The SCOOP specifies the probability of success and payoffs of each coalition. Players share the surplus of a coalition according to the NBS, with disagreement payoffs that are computed as the expectation of payoffs in other coalitions, using some common probability distribution, which in turn is derived from the prior distribution. The predicted outcome can be probabilistic or deterministic, but only the efficient coalition can succeed with probability one. We discuss necessary and sufficient conditions for an efficient solution. In either case, the SCOOP always exists, is generically unique, easy to compute, and exhibits smooth comparative statics. We also discuss non-cooperative implementation of the SCOOP.