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Envy can promote more equal division in alternating-offer bargaining

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  • Kohler, Stefan

Abstract

Bargainers in an open-ended alternating-offer bargaining situation may perceive envy, a utility loss caused by receiving the smaller share that is modeled in some social preferences in addition to self-interest. I extend Rubinstein (1982)'s original solution of the bargaining problem for two self-interested bargainers to this strategic situation. Bargainers still reach agreement in the first period and their bargaining shares increase in the strength of their own envy. As both bargainers' envy diminishes, the agreed partition converges to the Rubinstein division. If equally patient bargaining parties exhibit similar envy, then the agreed partition is tilted away from the Rubinstein division towards the equal division. Notably, the potential sensation of envy also boosts the share of the eventually envy-free party who leaves the bargaining with the larger share under the agreed partition. This gain in bargaining strength through envy can result in a bargaining outcome that is more unequal than predicted by the Rubinstein division.

Suggested Citation

  • Kohler, Stefan, 2012. "Envy can promote more equal division in alternating-offer bargaining," MPRA Paper 40761, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:40761
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    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    3. Stefan Kohler, 2014. "Guilt causes equal or unequal division in alternating-offer bargaining," Economics Bulletin, AccessEcon, vol. 34(3), pages 1611-1617.
    4. Maria Montero, 2007. "Inequity Aversion May Increase Inequity," Economic Journal, Royal Economic Society, vol. 117(519), pages 192-204, March.
    5. Kohler, Stefan, 2011. "Altruism and fairness in experimental decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 101-109.
    6. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-1136, December.
    7. Driesen, Bram & Perea, Andrés & Peters, Hans, 2012. "Alternating offers bargaining with loss aversion," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 103-118.
    8. Stefan Kohler, 2012. "Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining," Games, MDPI, Open Access Journal, vol. 3(3), pages 1-19, September.
    9. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
    10. Maria Montero, 2008. "Altruism, Spite and Competition in Bargaining Games," Theory and Decision, Springer, vol. 65(2), pages 125-151, September.
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    12. Topi Miettinen, 2010. "History-dependent Reciprocity in Alternating Offer Bargaining," Finnish Economic Papers, Finnish Economic Association, vol. 23(1), pages 1-15, Spring.
    13. Kohler, Stefan, 2012. "More fair play in an ultimatum game after resettlement in Zimbabwe: A field experiment and a structural model," MPRA Paper 40248, University Library of Munich, Germany.
    14. Ken Binmore & Avner Shared & John Sutton, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 753-770.
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    Cited by:

    1. Martin A. Leroch, 2015. "Rubinstein Bargaining with Other-Regarding Preferences," Working Papers 1509, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    2. Kohler, Stefan, 2013. "Inequality aversion causes equal or unequal division in alternating-offer bargaining," MPRA Paper 40764, University Library of Munich, Germany.
    3. Stefan Kohler, 2014. "Guilt causes equal or unequal division in alternating-offer bargaining," Economics Bulletin, AccessEcon, vol. 34(3), pages 1611-1617.
    4. Stefan Kohler, 2012. "Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining," Games, MDPI, Open Access Journal, vol. 3(3), pages 1-19, September.
    5. Guha, Brishti, 2016. "Malice in the Rubinstein bargaining game," MPRA Paper 75679, University Library of Munich, Germany.

    More about this item

    Keywords

    alternating offers; bargaining; bargaining power; behavioral economics; envy; equity; fairness; inequality aversion; negotiation; social preferences;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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