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A Theory of Fairness, Competition and Cooperation

  • Fehr, Ernst
  • Schmidt, Klaus M.

There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if a fraction of the people exhibits inequality aversion the puzzles can be resolved.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1812.

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Date of creation: Mar 1998
Date of revision:
Handle: RePEc:cpr:ceprdp:1812
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  1. Forsythe Robert & Horowitz Joel L. & Savin N. E. & Sefton Martin, 1994. "Fairness in Simple Bargaining Experiments," Games and Economic Behavior, Elsevier, vol. 6(3), pages 347-369, May.
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  8. Russell, Thomas & Thaler, Richard, 1985. "The Relevance of Quasi Rationality in Competitive Markets," American Economic Review, American Economic Association, vol. 75(5), pages 1071-82, December.
  9. Colin F. Camerer & Richard H. Thaler, 1995. "Anomalies: Ultimatums, Dictators and Manners," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 209-219, Spring.
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  13. Josef Falkinger, 2000. "A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence," American Economic Review, American Economic Association, vol. 90(1), pages 247-264, March.
  14. Lisa Cameron, 1995. "Raising the Stakes in the Ultimatum Game: Experimental Evidence From Indonesia," Working Papers 724, Princeton University, Department of Economics, Industrial Relations Section..
  15. Alvin E. Roth & V. Prasnikar & M. Okuno-Fujiwara & S. Zamir, 1998. "Bargaining and market behavior in Jerusalem, Liubljana, Pittsburgh and Tokyo: an experimental study," Levine's Working Paper Archive 344, David K. Levine.
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  17. Roberto Burlando & John Hey, . "Do Anglo-Saxons Free-Ride More?," Discussion Papers 95/37, Department of Economics, University of York.
  18. Kachelmeier, Steven J. & Shehata, Mohamed, 1992. "Culture and competition: A laboratory market comparison between China and the West," Journal of Economic Behavior & Organization, Elsevier, vol. 19(2), pages 145-168, October.
  19. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
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  23. Ockenfels, Axel & Weimann, Joachim, 1999. "Types and patterns: an experimental East-West-German comparison of cooperation and solidarity," Journal of Public Economics, Elsevier, vol. 71(2), pages 275-287, February.
  24. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
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