Abstract
We consider the problem of bargaining for a fair ex-ante distribution of random profits arising from a cooperative effort of a fixed set of risk-averse agents. Our approach integrates optimal managerial decision making into bargaining situations with random outcomes and explicitly models the impact of risk aversion. We model risk preferences using coherent acceptability functionals and base our bargaining solution on a set of axioms that can be considered a natural extension of Nash bargaining to our setting. The proposed axioms fully characterize a bargaining solution, which can be efficiently computed by solving a stochastic optimization problem. Furthermore, for players with distortion risk functionals, the optimal bargaining solution can be represented by an exchange of standard options contracts with the project profit as the underlying asset. We demonstrate that there is no conflict of interest between players about management decisions and that risk aversion facilitates cooperation. We illustrate the concepts in the paper with a detailed example of risk-averse households that jointly invest into a solar plant.