A Microfoundation for the Nash-in-Kalai Model

Abstract

This note presents a microfoundation for the Nash-in-Kalai model proposed by the companion paper Dorn (2025). The microfoundation is a demands game with revocation costs based on Dutta (2012). As opportunities to contract become instantaneous and the marginal cost of the first dollar of concession tend to infinity, gains from trade tend to zero and the bargaining solution tends to an instantaneous (and by extension a discrete) dynamic Kalai proportional bargaining solution. The game extends Dutta’s setup to include repeated bargaining.