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Fairness and the Optimal Allocation of Ownership Rights

  • Fehr, Ernst
  • Kremhelmer, Susanne
  • Schmidt, Klaus M.

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
Date of revision:
Handle: RePEc:cpr:ceprdp:5369
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  1. Fehr, Ernst & Schmidt, Klaus M., 2001. "Theories of Fairness and Reciprocity," Discussion Papers in Economics 14, University of Munich, Department of Economics.
  2. Maskin, Eric & Tirole, Jean, 1999. "Two Remarks on the Property-Rights Literature," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 139-49, January.
  3. Margin Dufwenberg & Georg Kirchsteiger, 2001. "A Theory of Sequential Reciprocity," Levine's Working Paper Archive 563824000000000090, David K. Levine.
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  5. Nöldeke, Georg & Schmidt, Klaus M., 1997. "Sequential Investments and Options to Own," CEPR Discussion Papers 1645, C.E.P.R. Discussion Papers.
  6. Tore Ellingsen & Magnus Johannesson, 2004. "Is There a Hold-up Problem?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 475-494, October.
  7. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  8. Rosenkranz, Stephanie & Schmitz, Patrick W., 1999. "Know-how disclosure and incomplete contracts," MPRA Paper 12533, University Library of Munich, Germany.
  9. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  10. Hessel Oosterbeek & Joep Sonnemans & Susan van Velzen, 2003. "The need for marriage contracts: An experimental study," Journal of Population Economics, Springer, vol. 16(3), pages 431-453, 08.
  11. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
  12. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
  13. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  14. Armin Falk & Urs Fischbacher, 2001. "A Theory of Reciprocity," CESifo Working Paper Series 457, CESifo Group Munich.
  15. Ernst Fehr & Klaus Schmidt, 2000. "Theories of Fairness and Reciprocity – Evidence and Economic Applications," CESifo Working Paper Series 403, CESifo Group Munich.
  16. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
  17. Hackett, Steven C, 1994. "Is Relational Exchange Possible in the Absence of Reputations and Repeated Contact?," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 360-89, October.
  18. Ernst Fehr & Alexander Klein & Klaus Schmidt, 2004. "Contracts, Fairness, and Incentives," CESifo Working Paper Series 1215, CESifo Group Munich.
  19. 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.
  20. Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series qt0dc3k4m5, Department of Economics, UC Santa Barbara.
  21. Tore Ellingsen & Magnus Johannesson, 2004. "Promises, Threats and Fairness," Economic Journal, Royal Economic Society, vol. 114(495), pages 397-420, 04.
  22. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 2001. "Reciprocity as a Contract Enforcement Device," Levine's Working Paper Archive 563824000000000143, David K. Levine.
  23. Pierre-André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory : A Survey of Some Recent Work," Working Papers 2002-11, Centre de Recherche en Economie et Statistique.
  24. Gantner, Anita & Guth, Werner & Konigstein, Manfred, 2001. "Equitable choices in bargaining games with joint production," Journal of Economic Behavior & Organization, Elsevier, vol. 46(2), pages 209-225, October.
  25. 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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