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Fair share and social effciency: a mechanism in which peers decide on the payoff division

Author

Listed:
  • Lu Dong

    (School of Economics, University of Nottingham)

  • Rod Falvey

    (Bond Business School, Bond University)

  • Shravan Luckraz

    (School of Economics, University of Nottingham, Ningbo China)

Abstract

We propose and experimentally test a mechanism for a class of principal-agent problems in which agents can observe each others' efforts. In this mechanism each player costlessly assigns a share of the pie to each of the other players, after observing their contributions, and the final distribution is determined by these assignments. We show that cooperation can be achieved under this simple mechanism and, in a controlled laboratory experiment, we find that players use a proportional rule to reward others in most cases and that the players' contributions improve substantially and almost immediately with 80% of players contributing fully.

Suggested Citation

  • Lu Dong & Rod Falvey & Shravan Luckraz, 2016. "Fair share and social effciency: a mechanism in which peers decide on the payoff division," Discussion Papers 2016-10, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2016-10
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    Cited by:

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    2. Andrzej Baranski, 2019. "Endogenous claims and collective production: an experimental study on the timing of profit-sharing negotiations and production," Experimental Economics, Springer;Economic Science Association, vol. 22(4), pages 857-884, December.
    3. Falvey, Rod & Lane, Tom & Luckraz, Shravan, 2025. "On a mechanism that improves efficiency and reduces inequality in voluntary contribution games," Games and Economic Behavior, Elsevier, vol. 150(C), pages 518-536.
    4. Chong Wang & Mingli Zheng, 2023. "Profit sharing with a contest among agents," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 244-250, January.
    5. Andrzej Baranski & Caleb A. Cox, 2019. "Communication in Multilateral Bargaining with Joint Production," Working Papers 20190032, New York University Abu Dhabi, Department of Social Science, revised Nov 2019.
    6. Klaus Abbink & Lu Dong & Lingbo Hugang, 2018. "Talking Behind Your Back: Asymmetric Communication in a Three-person Dilemma," Discussion Papers 2018-11, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    7. Cox, Caleb A. & Stoddard, Brock, 2024. "Inequality and the allocation of collective goods," Journal of Economic Behavior & Organization, Elsevier, vol. 220(C), pages 756-767.
    8. Klaus Abbink & Lu Dong & Lingbo Huang, 2022. "Talking Behind Your Back: Communication and Team Cooperation," Management Science, INFORMS, vol. 68(7), pages 5187-5200, July.
    9. Zhang, Sookie Xue & Bayer, Ralph-Christopher, 2024. "Revenue sharing agreements and hold-up problems in joint projects: Theory and experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 228(C).
    10. Andrzej Baranski & Caleb A. Cox, 2023. "Communication in multilateral bargaining with joint production," Experimental Economics, Springer;Economic Science Association, vol. 26(1), pages 55-77, March.
    11. Lu Dong & Lingbo Huang, 2018. "Favoritism and Fairness in Teams," Games, MDPI, vol. 9(3), pages 1-15, September.
    12. Brock V. Stoddard & Caleb A. Cox & James M. Walker, 2021. "Incentivizing provision of collective goods: Allocation rules," Southern Economic Journal, John Wiley & Sons, vol. 87(4), pages 1345-1365, April.
    13. Sasan Maleki & Talal Rahwan & Siddhartha Ghosh & Areej Malibari & Daniyal Alghazzawi & Alex Rogers & Hamid Beigy & Nicholas R Jennings, 2020. "The Shapley value for a fair division of group discounts for coordinating cooling loads," PLOS ONE, Public Library of Science, vol. 15(1), pages 1-28, January.
    14. Baranski, Andrzej & Kim, Duk Gyoo, 2024. "Sharing the burden of negative externalities: A tale of gridlock and accountability elusion," Ecological Economics, Elsevier, vol. 224(C).

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    More about this item

    Keywords

    mechanism design; experimental economics; fairness; distributive justice;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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