This paper reports the results of experiments involving a 3-person coalition formation game with an ultimatum bargaining character. The grand coalition was always the efficient coalition decision, whereas the values of the 2-person coalitions are varied such that they lead to an efficiency loss in the range of 6.7 up to 30 percent. Furthermore, the 2-person coalition implies social exclusion, since the not chosen member always receives a payoff of zero. Consistent with results reported in the literature on 2- person ultimatum bargaining experiments, negative reciprocity (i.e. punishment of unfair offers) plays a crucial role in decision making. The hypothesis that selfishness and anticipated negative reciprocity by proposers together with actual negative reciprocal behavior of responders lead to inefficient outcomes and social exclusion is strongly supported by the data. It turns out that a huge majority of proposers choose the inefficient and unfair 2-person coalition. Proposer-induced efficiency losses vary between 5 and 20 percent, and one sixth to almost one third of the population is excluded from participation.
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Paper provided by Institute for Advanced Studies in its series Economics Series with number
64.
Find related papers by JEL classification: A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
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