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Social Welfare versus Inequality Concerns in an Incomplete Contract Experiment

  • Marco Faravelli
  • Oliver Kirchkamp
  • Helmut Rainer

    ()

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.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2933.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2933
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  8. Oliver Hart & John Moore, 2006. "Contracts as Reference Points," NBER Working Papers 12706, National Bureau of Economic Research, Inc.
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  13. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
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