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Envy can promote more equal division in alternating-offer bargaining

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  • Kohler, Stefan

Abstract

Bargainers in an open-ended alternating-offer bargaining situation may perceive envy, a utility loss caused by receiving the smaller share that is modeled in some social preferences in addition to self-interest. I extend Rubinstein (1982)'s original solution of the bargaining problem for two self-interested bargainers to this strategic situation. Bargainers still reach agreement in the first period and their bargaining shares increase in the strength of their own envy. As both bargainers' envy diminishes, the agreed partition converges to the Rubinstein division. If equally patient bargaining parties exhibit similar envy, then the agreed partition is tilted away from the Rubinstein division towards the equal division. Notably, the potential sensation of envy also boosts the share of the eventually envy-free party who leaves the bargaining with the larger share under the agreed partition. This gain in bargaining strength through envy can result in a bargaining outcome that is more unequal than predicted by the Rubinstein division.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40761.

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Date of creation: 10 Sep 2012
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Publication status: Published in Journal of Neuroscience, Psychology, and Economics 6.1(2013): pp. 31-41
Handle: RePEc:pra:mprapa:40761

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Keywords: alternating offers; bargaining; bargaining power; behavioral economics; envy; equity; fairness; inequality aversion; negotiation; social preferences;

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References

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  1. Stefan Kohler, 2005. "Fairness vs. Social Welfare in Experimental Decisions," Economics Working Papers ECO2005/11, European University Institute.
  2. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
  3. Binmore, Ken & Shaked, Avner & Sutton, John, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 753-70, November.
  4. Topi Miettinen, 2010. "History-dependent Reciprocity in Alternating Offer Bargaining," Finnish Economic Papers, Finnish Economic Association, vol. 23(1), pages 1-15, Spring.
  5. Kohler, Stefan, 2012. "Guilt causes equal or unequal division in alternating-offer bargaining," MPRA Paper 40760, University Library of Munich, Germany.
  6. Stefan Kohler, 2012. "Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining," Games, MDPI, Open Access Journal, vol. 3(3), pages 119-137, September.
  7. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
  8. Dorothea Herreiner & Clemens Puppe, 2009. "Envy Freeness in Experimental Fair Division Problems," Theory and Decision, Springer, vol. 67(1), pages 65-100, July.
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  10. Maria Montero, 2007. "Inequity Aversion May Increase Inequity," Economic Journal, Royal Economic Society, vol. 117(519), pages C192-C204, 03.
  11. Kohler, Stefan, 2012. "More fair play in an ultimatum game after resettlement in Zimbabwe: A field experiment and a structural model," MPRA Paper 40248, University Library of Munich, Germany.
  12. Maria Montero, 2005. "Altruism, Spite and Competition in Bargaining Games," Game Theory and Information 0512004, EconWPA.
  13. G. Bolton, 2010. "A comparative model of bargaining: theory and evidence," Levine's Working Paper Archive 263, David K. Levine.
  14. Arnaud De Bruyn & Gary E. Bolton, 2008. "Estimating the Influence of Fairness on Bargaining Behavior," Management Science, INFORMS, vol. 54(10), pages 1774-1791, October.
  15. Binmore, Ken & Morgan, Peter & Snaked, Avner & Sutton, John, 1991. "Do people exploit their bargaining power? An experimental study," Games and Economic Behavior, Elsevier, vol. 3(3), pages 295-322, August.
  16. Weg, Eythan & Rapoport, Amnon & Felsenthal, Dan S., 1990. "Two-person bargaining behavior in fixed discounting factors games with infinite horizon," Games and Economic Behavior, Elsevier, vol. 2(1), pages 76-95, March.
  17. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
  18. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
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Cited by:
  1. Stefan Kohler, 2012. "Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining," Games, MDPI, Open Access Journal, vol. 3(3), pages 119-137, September.
  2. Kohler, Stefan, 2013. "Inequality aversion causes equal or unequal division in alternating-offer bargaining," MPRA Paper 40764, University Library of Munich, Germany.
  3. Kohler, Stefan, 2012. "Guilt causes equal or unequal division in alternating-offer bargaining," MPRA Paper 40760, University Library of Munich, Germany.

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