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Performance Information, Production Uncertainty, and Subjective Entitlements in Bargaining

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  • Emin Karagözoğlu

    (Department of Economics, Bilkent University, 06800 Ankara, Turkey)

  • Arno Riedl

    (Department of Economics (AE1), Maastricht University, 6200 MD Maastricht, The Netherlands; CESifo, 81679 Munich, Germany; IZA, 53113 Bonn, Germany; and, Netspar, 5037 AB Tilburg, The Netherlands)

Abstract

We experimentally explore the effect of performance information and production uncertainties on (i) subjective entitlements derived from the production process and (ii) bargaining over the jointly produced surplus. We hypothesize that performance information and details of the production process affect entitlements, which in turn influence bargaining behavior. We find that, without performance information, subjective entitlements are mostly mutually consistent, and bargaining mainly ends with an equal split. In stark contrast, negotiators derive strong, mutually inconsistent, subjective entitlements when there is performance information. These subjective entitlements affect opening proposals, concessions, and bargaining duration and lead to asymmetric agreements. Moreover, given performance information, endogenous variations in entitlements influence bargaining, suggesting an independent role of subjective entitlements. Production uncertainties influence bargaining, especially when performance information is present, but do not substantially mitigate the effect of entitlements. Theoretical bargaining models allowing for reference points or fairness principles can partly account for the empirical results. Yet, important aspects are left unexplained and our results suggest ways for extending these models.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2012 . This paper was accepted by Uri Gneezy, behavioral economics .

Suggested Citation

  • Emin Karagözoğlu & Arno Riedl, 2015. "Performance Information, Production Uncertainty, and Subjective Entitlements in Bargaining," Management Science, INFORMS, vol. 61(11), pages 2611-2626, November.
  • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:11:p:2611-2626
    DOI: 10.1287/mnsc.2014.2012
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    4. Colin F. Camerer & Gideon Nave & Alec Smith, 2019. "Dynamic Unstructured Bargaining with Private Information: Theory, Experiment, and Outcome Prediction via Machine Learning," Management Science, INFORMS, vol. 65(4), pages 1867-1890, April.
    5. Embrey, Matthew & Hyndman, Kyle & Riedl, Arno, 2021. "Bargaining with a residual claimant: An experimental study," Games and Economic Behavior, Elsevier, vol. 126(C), pages 335-354.
    6. Takeuchi, Ai & Veszteg, Róbert F. & Kamijo, Yoshio & Funaki, Yukihiko, 2022. "Bargaining over a jointly produced pie: The effect of the production function on bargaining outcomes," Games and Economic Behavior, Elsevier, vol. 134(C), pages 169-198.
    7. Luhan, Wolfgang J. & Poulsen, Anders U. & Roos, Michael W.M., 2017. "Real-time tacit bargaining, payoff focality, and coordination complexity: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 102(C), pages 687-699.
    8. Romain Espinosa & Bruno Deffains & Christian Thöni, 2020. "Debiasing preferences over redistribution: an experiment," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 55(4), pages 823-843, December.
    9. Karagözoğlu, Emin & Keskin, Kerim, 2018. "Time-varying fairness concerns, delay, and disagreement in bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 147(C), pages 115-128.
    10. Feltovich, Nick, 2019. "Is earned bargaining power more fully exploited?," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 152-180.
    11. Anbarci, Nejat & Feltovich, Nick, 2018. "How fully do people exploit their bargaining position? The effects of bargaining institution and the 50–50 norm," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 320-334.
    12. Fabio Galeotti & Maria Montero & Anders Poulsen, 2019. "Efficiency Versus Equality in Bargaining," Journal of the European Economic Association, European Economic Association, vol. 17(6), pages 1941-1970.
    13. Emin Karagözoğlu & Martin G. Kocher, 2019. "Bargaining under time pressure from deadlines," Experimental Economics, Springer;Economic Science Association, vol. 22(2), pages 419-440, June.
    14. Gantner, Anita & Kerschbamer, Rudolf, 2016. "Fairness and efficiency in a subjective claims problem," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 21-36.
    15. Fabio Galeotti & Maria Montero & Anders Poulsen, 2015. "Efficiency versus equality in real-time bargaining with communication," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 15-18, School of Economics, University of East Anglia, Norwich, UK..
    16. Lozano, Lina & Riedl, Arno & Rott, Christina, 2024. "The Impact of the Menstrual Cycle on Bargaining Behavior," IZA Discussion Papers 16768, Institute of Labor Economics (IZA).
    17. Anita Gantner & Regine Oexl, 2023. "Respecting entitlements in legislative bargaining: A matter of preference or necessity?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(2), pages 490-519, May.
    18. Hyndman, Kyle, 2021. "Dissolving partnerships under risk: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 702-720.
    19. Konow, James & Saijo, Tatsuyoshi & Akai, Kenju, 2020. "Equity versus equality: Spectators, stakeholders and groups," Journal of Economic Psychology, Elsevier, vol. 77(C).
    20. Lina Lozano & Arno Riedl & Christina Rott, 2024. "The Impact of the Menstrual Cycle on Bargaining Behavior," CESifo Working Paper Series 10932, CESifo.
    21. Cavalan, Quentin & de Gardelle, Vincent & Vergnaud, Jean-Christophe, 2022. "I did most of the work! Three sources of bias in bargaining with joint production," Journal of Economic Psychology, Elsevier, vol. 93(C).
    22. Regine Oexl & Anita Gantner, 2021. "Respecting Entitlements in Legislative Bargaining - A Matter of Preference or Necessity?," Working Papers 2021-25, Faculty of Economics and Statistics, Universität Innsbruck.
    23. Hyndman, Kyle, 2023. "Dynamic fairness in repeated bargaining with risk," Journal of Economic Psychology, Elsevier, vol. 94(C).
    24. Schmitz, Patrick W. & Kusterer, David J., 2018. "Government versus Private Ownership of Public Goods: Experimental Evidence," CEPR Discussion Papers 13204, C.E.P.R. Discussion Papers.
    25. Bolton, Gary E. & Karagözoğlu, Emin, 2016. "On the influence of hard leverage in a soft leverage bargaining game: The importance of credible claims," Games and Economic Behavior, Elsevier, vol. 99(C), pages 164-179.

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