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Fairness and the Optimal Allocation of Ownership Rights

34 Pages Posted: 27 Jan 2005  

Ernst Fehr

University of Zurich - Department of Economics

Susanne Kremhelmer

University of Munich - Department of Economics

Klaus M. Schmidt

Ludwig Maximilian University of Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

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Date Written: May 2005

Abstract

We report on several experiments on the optimal allocation of ownership rights. The experiments confirm the property rights approach by showing that the ownership structure affects relationship-specific investments and that subjects attain the most efficient ownership allocation despite starting from different initial conditions. However, in contrast to the property rights approach, the most efficient ownership structure is joint ownership. These results are neither consistent with the self-interest model nor with models that assume that all people behave fairly, but they can be explained by the theory of inequity aversion that focuses on the interaction between selfish and fair players.

Keywords: Ownership rights, double moral hazard, fairness, reciprocity, incomplete contracts

JEL Classification: C7, C9, J3

Suggested Citation

Fehr, Ernst and Kremhelmer, Susanne and Schmidt, Klaus M., Fairness and the Optimal Allocation of Ownership Rights (May 2005). CESifo Working Paper Series No. 1467; IEW Working Paper No. 224. Available at SSRN: https://ssrn.com/abstract=655082

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)

Susanne Kremhelmer

University of Munich - Department of Economics ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

Klaus M. Schmidt

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Ludwig Maximilian University of Munich - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany
+49 89 2180 3405 (Phone)
+49 89 2180 3510 (Fax)

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