Dorothea K Herreiner,
Economics Department, Loyola Marymount University
Clemens Puppe,
Department of Economics, University of Karlsruhe
Abstract:
In this paper, we report on a series of free-form bargaining experiments in which two players have to distribute four indivisible goods among themselves. In one treatment the monetary payoffs associated with each bundle of goods are common knowledge; in a second treatment only the ordinal ranking of the bundles is given. We find that in both cases, the following qualitative rule yields a good explanation of individual behavior: First determine the most equal distribution, then find a Pareto improvement provided that this does not create “too much” inequality. In the ordinal treatment, individuals apparently use the ranks in the respective preference orderings over bundles as a substitute for the unknown monetary value. Interestingly, we find much less Pareto-damaging behavior due to inequality aversion in the ordinal treatment.
Keywords: Fairness, Envy Freeness, Social Preferences, Bargaining
JEL Classification: D630, C790, C910, A130
Current Version: July 2006
[pdf]
A earlier version of this paper circulated under the title “Equitable Allocations in Experimental Bargaining Games: Inequality Aversion versus Efficiency”, available
as Bonn Econ Discussion Paper 29/2004.