Many agreements in macroeconomics and international economics are the outcomes of negotiations among a small number of participants or, in a game theory setting, players. This project has two objectives. The first is to develop an analytical framework to study macroeconomic bargaining problems. This framework will include an explicit model of macroeconomic bargaining and an equilibrium concept of sustainable bargaining equilibrium to represent the outcomes of the model. The second objective is to apply the bargaining model to analyze three important, contemporary, macroeconomic bargaining-problems. The first application is to the monetary union problem faced by Europe in adopting a common currency. Governments have conflicting interests because a common monetary policy is likely to result in the redistribution of wealth across member countries. The second application involves the debt renegotiations problem between the developed and less developed countries. Typical renegotiated agreements include rescheduling of debt payments, new lending, and debt forgiveness. Obviously, banks and governments have opposite interests with respect to debt repayment and debt reduction schemes. The final application concerns negotiations between the major political parties in the U.S regarding the budget deficit problem. In order to reduce the federal deficit, opposition parties must agree on some combination of tax increases and expenditure cuts. Conflicting interests arise because the parties respond to different constituencies and have different preferences about alternative tax and expenditure packages.
