Fair Share and Social Efficiency: A Mechanism in Which Peers Decide on the Payoff Division

37 Pages Posted: 22 Jul 2016 Last revised: 4 Jan 2017

See all articles by Lu Dong

Lu Dong

University of Nottingham - School of Economics

Rod Falvey

Bond University - Department of Economics

Shravan Luckraz

University of Nottingham

Date Written: January 4, 2017

Abstract

We propose and experimentally test a mechanism for a class of principal-agent problems in which agents can observe each others' efforts. In this mechanism, each player costlessly assigns a share of the pie to each of the other players, after observing their contributions, and the final distribution is determined by these assignments. We show that cooperation can be achieved under this simple mechanism and, in a controlled laboratory experiment, we find that players use a proportional rule to reward others in most cases and that the players' contributions improve substantially and almost immediately with 80% of players contributing fully.

Keywords: Experimental Economics, Fairness, Distributive Justice, Mechanism Design

JEL Classification: D62, H41, C79, C90, D63

Suggested Citation

Dong, Lu and Falvey, Rod and Luckraz, Shravan, Fair Share and Social Efficiency: A Mechanism in Which Peers Decide on the Payoff Division (January 4, 2017). Available at SSRN: https://ssrn.com/abstract=2812658 or http://dx.doi.org/10.2139/ssrn.2812658

Lu Dong (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Rod Falvey

Bond University - Department of Economics ( email )

Bond University - Department of Economics
Gold Coast, Queensland 4229
Australia

Shravan Luckraz

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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