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Fairness and the Optimal Allocation of Ownership Rights

  • Ernst Fehr
  • Susanne Kremhelmer
  • Klaus Schmidt

We report on several experiments on the optimal allocation of ownership rights. The experiments confirm the property rights approach by showing that the ownership structure affects relationship-specific investments and that subjects attain the most efficient ownership allocation despite starting from different initial conditions. However, in contrast to the property rights approach, the most efficient ownership structure is joint ownership. These results are neither consistent with the self-interest model nor with models that assume that all people behave fairly, but they can be explained by the theory of inequity aversion that focuses on the interaction between selfish and fair players.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1467.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1467
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  18. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  19. Ernst Fehr & Klaus Schmidt, 2000. "Theories of Fairness and Reciprocity – Evidence and Economic Applications," CESifo Working Paper Series 403, CESifo Group Munich.
  20. Pierre André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory: A Survey of Some Recent Work," CESifo Working Paper Series 738, CESifo Group Munich.
  21. Gary E Bolton & Axel Ockenfels, 1997. "A Theory of Equity, Reciprocity, and Competition," Levine's Working Paper Archive 1889, David K. Levine.
  22. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
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  25. Tore Ellingsen & Magnus Johannesson, 2004. "Promises, Threats and Fairness," Economic Journal, Royal Economic Society, vol. 114(495), pages 397-420, 04.
  26. Fehr, Ernst & Schmidt, Klaus M., 2001. "Theories of Fairness and Reciprocity," Discussion Papers in Economics 14, University of Munich, Department of Economics.
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