Efficiency Versus Equality in Bargaining

40 Pages Posted: 11 Nov 2015

See all articles by Fabio Galeotti

Fabio Galeotti

GATE, CNRS

Maria Montero

University of Nottingham - School of Economics

Anders Poulsen

University of East Anglia

Date Written: November 10, 2015

Abstract

We report experimental data from bargaining situations where bargainers can make proposals as often and whenever they want, and can communicate via written messages. We vary the set of feasible contracts, thereby allowing us to assess the focality of three properties of bargaining outcomes: equality, Pareto efficiency, and total earnings maximization. Our main findings are that subjects avoid an equal earnings contract if it is Pareto inefficient; a large proportion of bargaining pairs avoid equal and Pareto efficient contracts in favor of unequal and total earnings maximizing contracts, and this proportion increases when unequal contracts offer larger earnings to one of the players, even though this implies higher inequality. Finally, observed behavior violates the Independence of Irrelevant Alternatives axiom, a result we attribute to a "compromise effect".

Keywords: bargaining, efficiency, equality, communication, independence of irrelevant alternatives, experiment

JEL Classification: C70, C72, C92

Suggested Citation

Galeotti, Fabio and Montero, Maria and Poulsen, Anders, Efficiency Versus Equality in Bargaining (November 10, 2015). Available at SSRN: https://ssrn.com/abstract=2688599 or http://dx.doi.org/10.2139/ssrn.2688599

Fabio Galeotti

GATE, CNRS ( email )

93, chemin des Mouilles
Ecully, 69130
France

HOME PAGE: http://https://www.gate.cnrs.fr/spip.php?article795

Maria Montero

University of Nottingham - School of Economics ( email )

Centre for Decision Research & Experimental Econ.
University Park
Nottingham NG7 2RD
United Kingdom

Anders Poulsen (Contact Author)

University of East Anglia ( email )

Norwich NR47TJ, Norfolk
United Kingdom
+44 0 1603 591066 (Phone)

HOME PAGE: http://www.uea.ac.uk/eco/ecopeople/PoulsenA.html

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