Social welfare versus inequality aversion in an incomplete contract experiment
AbstractWe explore experimentally how power asymmetries between partners affect relationship-specific investments. We find that on average playersâ€™ investments are larger than equilibrium investments. In contrast to social dilemma experiments, in our experiment preferences for social welfare and those for equality call for different actions. Surprisingly, even disadvantaged players care more for social welfare and less for equality. As a result social welfare increases but so does inequality. We then study conditions under which power-advantaged players give up power. Power-sharing can be successful in the experiment, even when it is not in a selfish world.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2009-016.
Date of creation: 25 Feb 2009
Date of revision:
Experiments; Incomplete Contracts; Relationship-Specific Investment; Allocation of Power; Social Preferences;
Other versions of this item:
- Marco Faravelli & Oliver Kirchkamp & Helmut Rainer, 2009. "Social welfare versus inequality aversion in an incomplete contract experiment," CRIEFF Discussion Papers, Centre for Research into Industry, Enterprise, Finance and the Firm 0902, Centre for Research into Industry, Enterprise, Finance and the Firm.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-14 (All new papers)
- NEP-EXP-2009-03-14 (Experimental Economics)
- NEP-UPT-2009-03-14 (Utility Models & Prospect Theory)
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