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Envy can promote more equal division in alternating-offer bargaining

  • Kohler, Stefan

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40761.

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Date of creation: 10 Sep 2012
Date of revision:
Publication status: Published in Journal of Neuroscience, Psychology, and Economics 6.1(2013): pp. 31-41
Handle: RePEc:pra:mprapa:40761
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  1. Binmore, Ken & Morgan, Peter & Snaked, Avner & Sutton, John, 1991. "Do people exploit their bargaining power? An experimental study," Games and Economic Behavior, Elsevier, vol. 3(3), pages 295-322, August.
  2. Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
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  7. Kohler, Stefan, 2012. "Guilt causes equal or unequal division in alternating-offer bargaining," MPRA Paper 40760, University Library of Munich, Germany.
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  13. Dorothea K. Herreiner & Clemens Puppe, 2004. "Envy Freeness in Experimental Fair Division Problems," Bonn Econ Discussion Papers bgse28_2004, University of Bonn, Germany.
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