Information, Uncertainty, and Subjective Entitlements in Bargaining

63 Pages Posted: 26 Jul 2010  

Emin Karagözoğlu

Bilkent University

Arno Riedl

Maastricht University; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute)

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Abstract

More often than not production processes are the joint endeavor of people having different abilities and productivities. Such production processes and the associated surplus production are often not fully transparent in the sense that the relative contributions of involved agents are blurred; either by lack of information about the actual performance of collaborators or because of random noise in the production process or both. These variables likely influence the surplus sharing negotiations following the production. By means of a laboratory experiment, we systematically investigate their role for the whole bargaining process from opening offers to (dis)agreements and find that uncertainties in surplus production and (even) a very coarse performance information lead to bargaining asymmetries. In addition, we find that bargainers' subjective entitlements are also influenced by performance information and the randomness inherent in the production process. These differences in subjective entitlements together with the differences in entitlements between better and worse performers influence the whole bargaining process and significantly contribute to the differences in bargaining outcomes.

Keywords: bargaining, performance information, randomness in production process, entitlements, experiments

JEL Classification: C790, C920, D010, D290, D630, D890, M590

Suggested Citation

Karagözoğlu, Emin and Riedl, Arno, Information, Uncertainty, and Subjective Entitlements in Bargaining. IZA Discussion Paper No. 5079. Available at SSRN: https://ssrn.com/abstract=1648364

Emin Karagözoğlu (Contact Author)

Bilkent University ( email )

Bilkent, Ankara 06533
Turkey
+90-312-2901955 (Phone)
+90-312-2665140 (Fax)

HOME PAGE: http://www.bilkent.edu.tr/~karagozoglu/

Arno M. Riedl

Maastricht University ( email )

Department of Economics (AE1)
P.O. Box 616
Maastricht, 6200 MD
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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