A Theory of Fairness, Competition and Cooperation

Zurich IEER Working Paper No. 4

52 Pages Posted: 23 Aug 1998  

Ernst Fehr

University of Zurich - Department of Economics

Date Written: March 1998

Abstract

There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if a fraction of the people exhibits inequality aversion the puzzles can be resolved.

JEL Classification: C78, D43, H41, C90

Suggested Citation

Fehr, Ernst, A Theory of Fairness, Competition and Cooperation (March 1998). Zurich IEER Working Paper No. 4. Available at SSRN: https://ssrn.com/abstract=106228 or http://dx.doi.org/10.2139/ssrn.106228

Ernst Fehr (Contact Author)

University of Zurich - Department of Economics ( email )

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Zuerich, 8006
Switzerland
+41 1 634 3709 (Phone)
+41 1 634 4907 (Fax)

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