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Fairness and the Optimal Allocation of Ownership Rights

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Listed author(s):
  • Fehr, Ernst
  • Kremhelmer, Susanne
  • Schmidt, Klaus M.

Abstract

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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5369.

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Date of creation: Nov 2005
Handle: RePEc:cpr:ceprdp:5369
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Keywords: double moral hazard; fairness; incomplete contracts; ownership rights; reciprocity;

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Find related papers by JEL classification:
  • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
  • C9 - Mathematical and Quantitative Methods - - Design of Experiments
  • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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  20. 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.
  21. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  22. Eric Maskin & Jean Tirole, 1999. "Two Remarks on the Property-Rights Literature," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 139-149.
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  25. 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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