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Social Welfare versus Inequality Concerns in an Incomplete Contract Experiment

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  • Marco Faravelli
  • Oliver Kirchkamp
  • Helmut Rainer

Abstract

We study a situation where two players first choose a sharing rule, then invest into a joint production process, and then split joint benefits. We investigate how social preferences determine investments. In our experiment we find that even the materially disadvantaged player cares more for social welfare than about inequality. Behavioral preferences of disadvantaged players actually increase inequality. We also investigate when players give up an advantageous sharing rule. Power-sharing can be successful in the experiment, even when it is not in a selfish world.

Suggested Citation

  • Marco Faravelli & Oliver Kirchkamp & Helmut Rainer, 2010. "Social Welfare versus Inequality Concerns in an Incomplete Contract Experiment," CESifo Working Paper Series 2933, CESifo.
    • Handle: RePEc:ces:ceswps:_2933
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp2933.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    experiments; incomplete contracts; relationship-specific investment; allocation of power; social preferences;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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