Social Welfare Versus Inequality Concerns in an Incomplete Contract Experiment

50 Pages Posted: 8 Feb 2010

See all articles by Marco Faravelli

Marco Faravelli

The University of Queensland

Oliver Kirchkamp

University of Jena - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Helmut Rainer

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: January 2010

Abstract

We study a situation where two players first choose a sharing rule, then invest into a joint production process, and then split joint benefits. We investigate how social preferences determine investments. In our experiment we find that even the materially disadvantaged player cares more for social welfare than about inequality. Behavioral preferences of disadvantaged players actually increase inequality. We also investigate when players give up an advantageous sharing rule. Power-sharing can be successful in the experiment, even when it is not in a selfish world.

Keywords: experiments, incomplete contracts, relationship-specific investment, allocation of power, social preferences

JEL Classification: C91, D23, D86

Suggested Citation

Faravelli, Marco and Kirchkamp, Oliver and Rainer, Helmut, Social Welfare Versus Inequality Concerns in an Incomplete Contract Experiment (January 2010). CESifo Working Paper Series No. 2933. Available at SSRN: https://ssrn.com/abstract=1549532

Marco Faravelli

The University of Queensland ( email )

Australia

Oliver Kirchkamp

University of Jena - Economics Department ( email )

Carl-Zeiss-Str. 3
Jena, 07737
Germany

HOME PAGE: http://www.kirchkamp.de/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.kirchkamp.de/

Helmut Rainer (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
64
rank
339,425
Abstract Views
457
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information