How do people with social preferences choose among alternative income distributions. A theory of fairness, competition and cooperation ernst fehr and klaus m. Course in behavioral and experimental economics c m. Theories of fairness and reciprocity evidence and economic applications. Fehr and schmidt fs introduced an influential social utility function for individuals in interpersonal contexts that captures selfcentered inequity aversion. A theory of fairness, competition, and cooperation authors. More recently, several papers have estimated fehr schmidt inequity aversion parameters using estimation techniques such as maximum likelihood.
Given a group of l agents, the fehr schmidt utility function of agent i is. There is strong evidence that people exploit their. Pdf a theory of fairness, competition and cooperation. The quarterly journal of economics, august 1999, 817868 working paper no. Direct tests of models of social preferences and a new model. Fehr and schmidt 1999 predicts multiple equilibria in only 6% of all randomlyformed groups in my threeplayer setup, which contrasts with an observed 38%. Thus, even if it were true that in general 2 the inequity aversion approach by fehr and schmidt is compatible with the evidence in several other. Formal models of inequity aversion such as those by fehr and. When this work was published most economic models routinely assumed that material selfinterest is the sole motivation of all people engaging in economic activities. The aim of our paper is to answer this question in the context of the fehr schmidt 1999 preferences. Schmidt born june 16, 1961 is a german economist who currently works as professor of economics at the university of munich lmu.
Advances in economics and econometrics, econometric society. Does peer group size influence social preferences and risk. A conditional form of altruism andor envy is inequity aversion fehr and schmidt 1999, bolton and ockenfels 2000, charness and rabin 2002. Fehr and schmidt 1999, even a minority of inequalityaverse subjects may have powerful effects on the outcome of strategic interactions. Rabin 1993, fehr and schmidt 1999 predict that some principals are fairminded and thus refrain from exploiting their agents even in treatment random. Treatment variations provide evidence on how the observed equilibrium sets vary with changes in the experimental parameters. Schmidt 1999 or bolton and ockenfels 2000 have been quite successful in explaining patterns. The value of this social utility function lies in its exceptionally good balance between parsimony and fit. For example, persons in a flood plain may be less likely to purchase flood insurance if their neighbors also refrain from purchasing. Thus, even if it were true that in general only onethird of the population is motivated by inequality aversion, this motive can have.
The economics of fairness, reciprocity and altruism experimental evidence and new theories. Fehr, ernst and klaus schmidt 1999 a theory of fairness, competition, and. Valderrama beatriz motivacion inteligente pdf free download. Fehr e schmidt k m 1999 a theory of fairness competition. The economics of fairness, reciprocity and altruism experimental evidence and new theories ernst fehra university of zurich klaus m.
A theory of fairness, competition, and cooperation. A theory of fairness, competition, and cooperation, the quarterly journal of economics, 114 3, aug, pp 817868 schwarze j. Theory of fairness, competition, and cooperation the. On inequity aversion a reply to binmore and shaked ernst fehr a university of zurich klaus m. Theory of fairness, competition, and cooperation the quarterly. An extention of the model of inequity aversion by fehr and schmidt. Fehr and schmidt 1999 assume that a player is altruistic towards other players if their material payoffs are below an equitable benchmark, but she feels envy. Are people inequality averse, and do they prefer redistribution by the state. Fairness and reciprocity jonathan levin june 2006 beyond the fact that laboratory play does not correspond to notions of equilibrium, many laboratory results seem strikingly at odds with the. Inequality, inequity aversion, and the provision of public goods.
This paper shows that reciprocity has powerful implications for many economic domains. Schmidt there is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. Fehr and schmidt 1999 even a minority of inequality averse subjects may have powerful effects on the outcome of strategic interactions. Inequity aversion, welfare measurement and the gini index. Dominance concepts for discrete fehrschmidt preferences. The aim of this paper is to improve on the model by fehr and schmidt 1999 by developing a nonlinear model. This paper provides a preference foundation for exactly the model of fs with preference conditions that exactly capture the. Dominance concepts for fehrschmidt preferences sanjit dhamiy ali alnowaihiz 30 may 20 abstract many diverse problems in economics can only be reasonably explained by assuming that people have social preferences, i. Schmidt 1999 model to allow the intensity of the social preferences to vary with the size of the peer group. Schmidt b university of munich february 4, 2009 abstract.
Yet, when they are given the opportunity to punish freeriders, stable cooperation is maintained although punishment is costly for those. An experimental investigation astrid dannenberg, thomas riechmann, bodo sturm, and carsten vogt. Rohde2 january 12, 2009 1the author would like to thank itzhak gilboa, ingrid m. His research focuses on behavioural economics, game theory and contract theory. Effects of affiliation and power motivation arousal on salivary progesterone and.
Theory of fairness, competition, and cooperation oxford. In this paper we reply to binmore and shakeds criticism of the fehr schmidt model of inequity aversion. Schmidtb university of munich and cepr chapter written for the handbook of reciprocity, giftgiving and altruism this version. Using a laboratory experiment, we study the predictive power of the fehr schmidt 1999 model of inequity aversion and its robustness to reciprocity and stakes. In the first step, subjects play selected games in order to estimate their individual. A preference foundation for fehr and schmidt s model of inequity aversion1 kirsten i. The perfect correlation between the alpha and beta parameters in fehr and schmidt 1999 is an assumption made in the appendix of their paper that is not justified by the data that they provide. Valderrama beatriz motivacion inteligente charlie chaplin.
Schmidt, a theory of fairness, competition, and cooperation. These models modify the standard utility function in the following way. Pdf the economics of fairness, reciprocity and altruism. It is an important determinant in the enforcement of contracts and social norms and. A preference foundation for fehr and schmidts model. Our experiment tests whether subjects are more or less likely to choose a lottery over a fixed payment when others have been assigned either the same lottery or the fixed payment. Fehr e schmidt k m 1999 a theory of fairness competition and cooperation the from economics 2001 at ohio state university. Probably the simplest model of other regarding preferences that goes beyond pure altruism is the inequality aversion model, popularized in the late 1990s by fehr and schmidt 1999 and bolton and ochenfels 2000. Social preferences i and ii martin kocher university of munich. The classical notions of first and second order stochastic dominance are not useful in this case. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Schmidtb university of munich and cepr published in. Inequity aversion and individual behavior in public good games. In section 5, we discuss the difference between the distribution of preferences used in fs 1999 and that in fehr and schmidt 2004, fehr et al.
If he tries, you can just pick someone elses offer. Mathias dewatripont, lars peter hansen and stephen j turnovsky 2003. For full access to this pdf, sign in to an existing account, or purchase an annual subscription. A preference foundation for fehr and schmidts model of. There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. Third party punishment and social norms ernst fehr and urs fischbacher january 2004 published in. A theory of fairness, competition, and cooperation ernst fehr. A theory of fairness, competition, and cooperation author. What are the equilibria in linear publicgood experiments.
We find stronger evidence for the models predictive power at the individual level than what the existing literature suggests. There is also strong evidence that people exploit freeriding opportunities in voluntary cooperation games. Effects of affiliation and power motivation arousal on salivary progesterone and testosterone. Such model intends to capture the idea that people dislike, to a certain extent, unequal outcomes, even if they bene. The utility function of fehr and schmidt 1999 can be and has been, of course, applied to a wide variety of games and distribution exercises. The quarterly journal of economics 114 3, 817868, 1999. In such models fairness considerations or preferences for cooperation dont play a role when. These models have been widely applied to data in the past and continue to be applied in current literature chen and li, 2009.
2 178 149 958 548 555 1608 1340 1359 684 1620 752 144 475 1191 1398 410 452 303 351 370 749 93 1334 628 359 105 259 392 1086 1064