In my economic analysis class, we talked about an essay by Joseph Stiglitz called "The Private Uses of Public Interests: Incentives and Institutions." In his essay, Stiglitz writes about the failures of the USA government to implement Pareto or near-Pareto improvements. Stiglitz's comments on the challenges of implementing Pareto improvements interested me.

One challenge that Stiglitz identifies is the tendency of politicians to make things into a zero-sum game. The easiest way to do this is to focus on relative improvement. So, instead of accepting a situation where both parties are better off (although to different degrees), one party refuses to deal. Consider this example, provided by my professor.

A group of people is randomly divided into groups of two. Within the group, one person is randomly chosen as the banker and given ten dollars. The banker is supposed to divide the ten dollars between herself and the other person (in $1 increments). The other person can accept or reject the offer. This process is repeated a number of times. The participants do not know how many times the process will be repeated, but they do know that the goal is to get as much money as possible. Interestingly, many people refuse the banker's offer (which is often $1/$9).

Anyway, I think similar thinking underlies the deadlock in CBA negotiations between the NHL and the NHLPA. And, sadly, only time will erode both sides focus on relative improvement. It occurred to me that this lockout provides economists with a captive audience for economic theory. Universities should hold seminars on bargaining theories for interested fans.