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Estimating a Parsimonious Model of Inequality Aversion in Stackelberg Duopoly Experiments

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  • Sau-Him Paul Lau
  • Felix Leung
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    Abstract

    In the Stackelberg duopoly experiments in Huck "et al." (2001) , nearly half of the followers' behaviours are inconsistent with conventional prediction. We use a test in which the conventional self-interested model is nested as a special case of an inequality aversion model. Maximum likelihood methods applied to the Huck "et al." (2001) data set reject the self-interested model. We find that almost 40% of the players have disadvantageous inequality aversion that is statistically different from zero and economically significant, but advantageous inequality aversion is relatively unimportant. These estimates provide support for a more parsimonious model with no advantageous inequality aversion. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2010.

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    Bibliographic Info

    Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

    Volume (Year): 72 (2010)
    Issue (Month): 5 (October)
    Pages: 669-686

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    Handle: RePEc:bla:obuest:v:72:y:2010:i:5:p:669-686

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    Cited by:
    1. Jeroen Hinloopen & Wieland Müller & Hans-Theo Normann, 2011. "Output Commitment through Product Bundling: Experimental Evidence," Vienna Economics Papers 1112, University of Vienna, Department of Economics.
    2. Wieland Mueller & Fangfang Tan, 2011. "Who acts more like a game theorist? Group and individual play in a sequential market game and the effect of the time horizon," Vienna Economics Papers 1111, University of Vienna, Department of Economics.
    3. Cardella, Eric & Chiu, Ray, 2012. "Stackelberg in the lab: The effect of group decision making and “Cooling-off” periods," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1070-1083.

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