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Peer-Induced Fairness in Games

  • Teck-Hua Ho
  • Xuanming Su

People exhibit peer-induced fairness concerns when they look to their peers as a reference to evaluate their endowments. We analyze two independent ultimatum games played sequentially by a leader and two followers. With peer-induced fairness, the second follower is averse to receiving less than the first follower. Using laboratory experimental data, we estimate that peer-induced fairness between followers is two times stronger than distributional fairness between leader and follower. Allowing for heterogeneity, we find that 50 percent of subjects are fairness-minded. We discuss how peer-induced fairness might limit price discrimination, account for low variability in CEO compensation, and explain pattern bargaining. (JEL C72, D63 )

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 5 (December)
Pages: 2022-49

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:5:p:2022-49
Note: DOI: 10.1257/aer.99.5.2022
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