Splitting the gain from trade is a value-laden act

In this highly condensed piece of a longer article I’m working on, I analyze a single market transaction between a buyer and a seller.

I point out that the difference between the buyer’s reservation price (or willingness to buy) and the seller’s cost is  the potential gain from trade if this particular transaction is concluded.

For the transaction to actually happen, the buyer and the seller must agree how to split the gain from trade. If they don’t agree, the transaction is aborted, and both sides lose the potential gain from trade.

The problem of how the gain from trade should be split between the two sides is a matter  that involves values about sharing, fairness and justice. It is an inherently ideological act.

I analyze the various ways that this problem is resolved, from various perspectives: neoclassical price theory, game theory as applied to bargaining, social philosophies of justice, and commonly-accepted values of existing societies.

And I show that considerations of fairness almost always figure in the resolution of the problem.

I will also post the longer article, when I’m done with it.

I will appreciate any comments.

Roberto Verzola