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Equitable Allocations in Experimental Bargaining Games: Inequality Aversion versus Efficiency

  • Dorothea K. Herreiner
  • Clemens Puppe

In this paper, we report on a series of free-form bargaining experiments in which two players have to distribute four indivisible goods among themselves. In one treatment the monetary payoffs associated with each bundle of goods are common knowledge; in a second treatment only the ordinal ranking of the bundles is given. We find that in both cases, the following qualitative rule yields a good explanation of individual behavior: First determine the most equal distribution, then find a Pareto improvement provided that this does not create “too much” inequality. In the ordinal treatment, individuals apparently use the ranks in the respective preference orderings over bundles as a substitute for the unknown monetary value. Interestingly, we find much less Pareto-damaging behavior due to inequality aversion in the ordinal treatment.

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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse29_2004.pdf
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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse29_2004.

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Length: 27
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:bon:bonedp:bgse29_2004
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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  1. Dorothea K. Herreiner & Clemens Puppe, 2004. "Envy Freeness in Experimental Fair Division Problems," Bonn Econ Discussion Papers bgse28_2004, University of Bonn, Germany.
  2. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
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