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Rotten Kids With Bad Intentions

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  • Nick Netzer

    ()
    (Department of Economics, University of Zurich)

  • Armin Schmutzler

    ()
    (Department of Economics, University of Zurich)

Abstract

We examine a “Rotten Kid” model (Becker 1974) where a player with social preferences interacts with an egoistic player. We assume that social preferences are intentionbased rather than outcome-based. In a very general multi-stage setting we show that any equilibrium must involve mutually unkind behavior of both players, endogenously generating negative rather than positive emotions. In a large class of two-stage games that includes principal-agent and gift-giving games, this prevents the equilibrium from being materially Pareto efficient. Compared to the subgame-perfect equilibrium without social preferences, efficiency is still generally increased. On the other hand, the materialistic player has lower whereas the reciprocal player has higher material payoffs, so that reciprocity does not increase equity: For sufficiently strong reciprocity concerns, the materialistic player ends up with a negligible share of the gains from trade.

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File URL: http://www.soi.uzh.ch/research/wp/2009/wp0919.pdf
File Function: Revised version, 2011
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Bibliographic Info

Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0919.

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Length: 40 pages
Date of creation: Dec 2009
Date of revision: Nov 2011
Handle: RePEc:soz:wpaper:0919

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Keywords: Reciprocity; psychological games; moral hazard; gift giving;

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References

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  1. Björn Bartling & Urs Fischbacher, 2012. "Shifting the Blame: On Delegation and Responsibility," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 67-87.
  2. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 166-193, March.
  3. Armin Falk & Urs Fischbacher, . "A Theory of Reciprocity," IEW - Working Papers 006, Institute for Empirical Research in Economics - University of Zurich.
  4. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics, University of Munich, Department of Economics 20650, University of Munich, Department of Economics.
  5. Florian Englmaier & Stephen Leider, 2012. "Contractual and Organizational Structure with Reciprocal Agents," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 4(2), pages 146-83, May.
  6. Dufwenberg, Martin & Kirchsteiger, Georg, 2000. "Reciprocity and wage undercutting," European Economic Review, Elsevier, Elsevier, vol. 44(4-6), pages 1069-1078, May.
  7. Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series qt0dc3k4m5, Department of Economics, UC Santa Barbara.
  8. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
  9. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(6), pages 1063-93, Nov.-Dec..
  10. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, Econometric Society, vol. 65(4), pages 833-860, July.
  11. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 24(1), pages 120-137, May.
  12. Pierpaolo Battigalli & Martin Dufwenberg, 2005. "Dynamic Psychological Games," Working Papers 287, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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Citations

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Cited by:
  1. Andreas Polk & Armin Schmutzler & Adrian Muller, 2010. "Lobbying and the Power of Multinational Firms," SOI - Working Papers, Socioeconomic Institute - University of Zurich 1008, Socioeconomic Institute - University of Zurich.
  2. Matteo Bassi & Marco Pagnozzi & Salvatore Piccolo, 2013. "Optimal Contracting with Altruism and Reciprocity," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 342, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  3. Michele Sennhauser, 2009. "Why the Linear Utility Function is a Risky Choice in Discrete-Choice Experiments," SOI - Working Papers, Socioeconomic Institute - University of Zurich 1014, Socioeconomic Institute - University of Zurich.
  4. Felix Bierbrauer & Nick Netzer, 2012. "Mechanism design and intentions," ECON - Working Papers, Department of Economics - University of Zurich 066, Department of Economics - University of Zurich, revised Apr 2014.
  5. Giuseppe De Marco & Giovanni Immordino, 2010. "Partnership, Reciprocity and Team Design," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 257, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 24 Mar 2011.
  6. Giuseppe De Marco & Giovanni Immordino, 2012. "Reciprocity in the Principal Multiple Agent Model," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 314, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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