IDEAS home Printed from https://ideas.repec.org/a/bla/randje/v53y2022i1p138-165.html
   My bibliography  Save this article

An experimental test of the Coase conjecture: Fairness in dynamic bargaining

Author

Listed:
  • Jack Fanning
  • Andrew Kloosterman

Abstract

We conduct a novel experimental test of the Coase conjecture based on subjects' privately known preferences for fairness. In an infinite horizon bargaining game, a proposer proposes a division of chips, until a responder accepts. When players are patient, the Coase conjecture predicts almost immediate agreement on equal monetary payoffs given any possibility a responder will not accept anything less. Behavior closely matches theory. In particular, when chips are worth more to proposers than responders, initial offers, minimum acceptable offers, responder payoffs, and efficiency are significantly larger in infinite horizon games than ultimatum games, and proposer payoffs are significantly smaller.

Suggested Citation

  • Jack Fanning & Andrew Kloosterman, 2022. "An experimental test of the Coase conjecture: Fairness in dynamic bargaining," RAND Journal of Economics, RAND Corporation, vol. 53(1), pages 138-165, March.
    • Handle: RePEc:bla:randje:v:53:y:2022:i:1:p:138-165
    DOI: 10.1111/1756-2171.12403
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1756-2171.12403
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1756-2171.12403?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Tilman Slembeck, 1999. "Reputations and Fairness in Bargaining - Experimental Evidence from a Repeated Ultimatum Game With Fixed Opponents," Experimental 9905002, University Library of Munich, Germany.
    2. Lopomo, Giuseppe & Ok, Efe A, 2001. "Bargaining, Interdependence, and the Rationality of Fair Division," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 263-283, Summer.
    3. Bolton, Gary E. & Karagözoğlu, Emin, 2016. "On the influence of hard leverage in a soft leverage bargaining game: The importance of credible claims," Games and Economic Behavior, Elsevier, vol. 99(C), pages 164-179.
    4. David Lucking-Reiley & John A. List, 2000. "Demand Reduction in Multiunit Auctions: Evidence from a Sportscard Field Experiment," American Economic Review, American Economic Association, vol. 90(4), pages 961-972, September.
    5. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    6. Güth, Werner & Kocher, Martin G., 2014. "More than thirty years of ultimatum bargaining experiments: Motives, variations, and a survey of the recent literature," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 396-409.
    7. Guth, Werner & Ockenfels, Peter & Ritzberger, Klaus, 1995. "On durable goods monopolies an experimental study of intrapersonal price competition and price discrimination over time," Journal of Economic Psychology, Elsevier, vol. 16(2), pages 247-274, July.
    8. Hessel Oosterbeek & Randolph Sloof & Gijs van de Kuilen, 2004. "Cultural Differences in Ultimatum Game Experiments: Evidence from a Meta-Analysis," Experimental Economics, Springer;Economic Science Association, vol. 7(2), pages 171-188, June.
    9. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June.
    10. Simon Gächter & Arno Riedl, 2005. "Moral Property Rights in Bargaining with Infeasible Claims," Management Science, INFORMS, vol. 51(2), pages 249-263, February.
    11. Simon G�chter & Arno Riedl, "undated". "Moral Property Rights in Bargaining," IEW - Working Papers 113, Institute for Empirical Research in Economics - University of Zurich.
    12. Simon Board & Marek Pycia, 2014. "Outside Options and the Failure of the Coase Conjecture," American Economic Review, American Economic Association, vol. 104(2), pages 656-671, February.
    13. Srivastava, Joydeep, 2001. "The Role of Inferences in Sequential Bargaining with One-Sided Incomplete Information: Some Experimental Evidence," Organizational Behavior and Human Decision Processes, Elsevier, vol. 85(1), pages 166-187, May.
    14. Stanley S. Reynolds, 2000. "Durable-Goods Monopoly: Laboratory Market and Bargaining Experiments," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 375-394, Summer.
    15. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    16. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
    17. Timothy Cason & Stanley Reynolds, 2005. "Bounded rationality in laboratory bargaining with asymmetric information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(3), pages 553-574, April.
    18. Roth, Alvin E. & Malouf, Michael W. K. & Murnighan, J. Keith, 1981. "Sociological versus strategic factors in bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 2(2), pages 153-177, June.
    19. Werner Güth & Sabine Kröger & Hans-Theo Normann, 2004. "Durable-Goods Monopoly with Privately Known Impatience: A Theoretical and Experimental Study," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 413-424, July.
    20. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    21. Sandeep Baliga & Jeffrey C. Ely, 2016. "Torture and the Commitment Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(4), pages 1406-1439.
    22. repec:feb:framed:0052 is not listed on IDEAS
    23. Charness, Gary & Gneezy, Uri & Henderson, Austin, 2018. "Experimental methods: Measuring effort in economics experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 149(C), pages 74-87.
    24. Kagel, John H. & Kim, Chung & Moser, Donald, 1996. "Fairness in Ultimatum Games with Asymmetric Information and Asymmetric Payoffs," Games and Economic Behavior, Elsevier, vol. 13(1), pages 100-110, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fanning, Jack, 2022. "Fairness and the Coase conjecture," Journal of Economic Psychology, Elsevier, vol. 93(C).
    2. Heggedal, Tom-Reiel & Helland, Leif & Våge Knutsen, Magnus, 2022. "The power of outside options in the presence of obstinate types," Games and Economic Behavior, Elsevier, vol. 136(C), pages 454-468.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Heike Hennig-Schmidt & Bernd Irlenbusch & Rainer Michael Rilke & Gari Walkowitz, 2018. "Asymmetric outside options in ultimatum bargaining: a systematic analysis," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(1), pages 301-329, March.
    2. Dongkyu Chang & Duk Gyoo Kim & Wooyoung Lim, 2022. "Positive and Negative Selection in Bargaining: An Experiment," CESifo Working Paper Series 9908, CESifo.
    3. Fanning, Jack, 2022. "Fairness and the Coase conjecture," Journal of Economic Psychology, Elsevier, vol. 93(C).
    4. Bayer, Ralph-C., 2010. "Intertemporal price discrimination and competition," Journal of Economic Behavior & Organization, Elsevier, vol. 73(2), pages 273-293, February.
    5. Heinrich Ursprung & Katarina Zigova, 2021. "The Ultimate Coasian Commitment: Estimating and Explaining Artist-Specific Death Effects," Working Papers CEB 21-013, ULB -- Universite Libre de Bruxelles.
    6. Vincent Mak & Amnon Rapoport & Eyran J. Gisches & Jiaojie Han, 2014. "Purchasing Scarce Products Under Dynamic Pricing: An Experimental Investigation," Manufacturing & Service Operations Management, INFORMS, vol. 16(3), pages 425-438, July.
    7. Embrey, Matthew & Hyndman, Kyle & Riedl, Arno, 2021. "Bargaining with a residual claimant: An experimental study," Games and Economic Behavior, Elsevier, vol. 126(C), pages 335-354.
    8. Rodriguez-Lara, Ismael, 2016. "Equity and bargaining power in ultimatum games," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 144-165.
    9. Güth, Werner & Kocher, Martin G., 2014. "More than thirty years of ultimatum bargaining experiments: Motives, variations, and a survey of the recent literature," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 396-409.
    10. Colin F. Camerer & Gideon Nave & Alec Smith, 2019. "Dynamic Unstructured Bargaining with Private Information: Theory, Experiment, and Outcome Prediction via Machine Learning," Management Science, INFORMS, vol. 65(4), pages 1867-1890, April.
    11. Devanur, Nikhil R. & Peres, Yuval & Sivan, Balasubramanian, 2019. "Perfect Bayesian Equilibria in repeated sales," Games and Economic Behavior, Elsevier, vol. 118(C), pages 570-588.
    12. Emin Karagözoğlu & Kerim Keskin & Elif Özcan-Tok, 2019. "Between anchors and aspirations: a new family of bargaining solutions," Review of Economic Design, Springer;Society for Economic Design, vol. 23(1), pages 53-73, June.
    13. Sigbjørn Birkeland & Bertil Tungodden, 2014. "Fairness motivation in bargaining: a matter of principle," Theory and Decision, Springer, vol. 77(1), pages 125-151, June.
    14. Demiral, Elif E. & Mollerstrom, Johanna, 2020. "The entitlement effect in the ultimatum game – does it even exist?," Journal of Economic Behavior & Organization, Elsevier, vol. 175(C), pages 341-352.
    15. Feltovich, Nick, 2019. "Is earned bargaining power more fully exploited?," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 152-180.
    16. Rosato, Antonio, 2017. "Sequential negotiations with loss-averse buyers," European Economic Review, Elsevier, vol. 91(C), pages 290-304.
    17. Bolton, Gary E. & Karagözoğlu, Emin, 2016. "On the influence of hard leverage in a soft leverage bargaining game: The importance of credible claims," Games and Economic Behavior, Elsevier, vol. 99(C), pages 164-179.
    18. Beccuti, Juan & Möller, Marc, 2021. "Screening by mode of trade," Games and Economic Behavior, Elsevier, vol. 129(C), pages 400-420.
    19. Sandro Brusco & Hugo Hopenhayn, 2007. "Deregulation with consensus," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(1), pages 223-250, July.
    20. Walter Beckert, 2004. "Dynamic Monopolies with Stochastic Demand," Birkbeck Working Papers in Economics and Finance 0404, Birkbeck, Department of Economics, Mathematics & Statistics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:randje:v:53:y:2022:i:1:p:138-165. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/randdus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.