Evolution of division rules

Several division rules have been proposed in the literature regarding how anarbiter should divide a bankrupt estate. Different rules satisfy different sets ofaxioms, but all rules satisfy claims boundedness which requires that no contributorbe given more than her initial contribution. This paper takes two non-cooperativebargaining games - the contracting game (Young, 1998a), and the Nash demandgame, and adds the axiom of claims boundedness to the rules of these games.Outcomes prescribed by all the division rules are strict Nash equilibria in theone-shot version of both these augmented games. We show that the division suggestedby the truncated claims proportional rule is the unique long run outcome ifwe embed the augmented contracting game in Young’s (1993b) evolutionary bargainingmodel. With the augmented Nash demand game as the underlying bargaininggame, the long run outcome is the division prescribed by the constrained equalawards rule.