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

Listed author(s):
  • 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)

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.

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File URL: http://www.nottingham.ac.uk/cedex/documents/papers/cedex-discussion-paper-2016-10.pdf
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Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2016-10.

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Date of creation: Oct 2016
Handle: RePEc:not:notcdx:2016-10
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School of Economics University of Nottingham University Park Nottingham NG7 2RD

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Web page: http://www.nottingham.ac.uk/economics/cedex/

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