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Equity and Adverse Selection

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  • Ramarao Desiraju
  • David E. M. Sappington

Abstract

We introduce concerns with inequity into the canonical adverse selection model. We find that aversion to ex post inequity is not constraining for the principal if the two agents are identical ex ante, but generally is constraining when the agents differ ex ante. Constraining equity concerns can lead to output levels that are either above or below standard levels, and can result in only one agent experiencing systematic inequity in equilibrium.

Suggested Citation

  • Ramarao Desiraju & David E. M. Sappington, 2007. "Equity and Adverse Selection," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 285-318, June.
    • Handle: RePEc:bla:jemstr:v:16:y:2007:i:2:p:285-318
    DOI: 10.1111/j.1530-9134.2007.00140.x
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    Cited by:

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    2. Tampieri, A., 2022. "The effects of educational assortative matching on job and marital satisfaction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 98(C).
    3. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    4. Laszlo Goerke & Michael Neugart, 2017. "Social comparisons in Oligopsony," IAAEG Discussion Papers until 2011 201704, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    5. Laszlo Goerke & Michael Neugart, 2021. "Social preferences, monopsony and government intervention," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(2), pages 864-891, May.
    6. Gill, David & Stone, Rebecca, 2015. "Desert and inequity aversion in teams," Journal of Public Economics, Elsevier, vol. 123(C), pages 42-54.
    7. Daske, Thomas & March, Christoph, 2024. "Efficient incentives with social preferences," Theoretical Economics, Econometric Society, vol. 19(3), July.
    8. Jean-Michel Oudot & Claude Ménard, 2010. "Opportunisme ou équité ? Le cas des contrats d’approvisionnement de défense," Revue Française d'Économie, Programme National Persée, vol. 24(3), pages 195-226.
    9. Bose, Arup & Pal, Debashis & Sappington, David E.M., 2010. "Asymmetric treatment of identical agents in teams," European Economic Review, Elsevier, vol. 54(7), pages 947-961, October.
    10. Sabrina Teyssier, 2008. "Les Modes de Rémunération comme MécanismesSélectifs de la Main d'oeuvre : Fondements Théoriques et Estimations Empiriques," Post-Print halshs-00303703, HAL.
    11. Barigozzi, Francesca & Manna, Ester, 2020. "Envy in mission-oriented organisations," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 395-424.
    12. Doruk İriş & Luís Santos-Pinto, 2014. "Experimental Cournot oligopoly and inequity aversion," Theory and Decision, Springer, vol. 76(1), pages 31-45, January.
    13. Grund, Christian & Przemeck, Judith, 2008. "Subjective Performance Evaluation and Inequality Aversion," IZA Discussion Papers 3382, Institute of Labor Economics (IZA).
    14. Dominik Erharter, 2013. "Screening Experts' Distributional Preferences," Working Papers 2013-27, Faculty of Economics and Statistics, Universität Innsbruck.
    15. Manna, Ester, 2016. "Envy in the workplace," Economics Letters, Elsevier, vol. 142(C), pages 18-21.
    16. Desiraju, Ramarao & Sappington, David E.M., 2007. "Equity and adverse selection with correlated costs," Economics Letters, Elsevier, vol. 95(3), pages 402-407, June.
    17. Dominik Erharter, 2012. "Credence goods markets, distributional preferences and the role of institutions," Working Papers 2012-11, Faculty of Economics and Statistics, Universität Innsbruck.
    18. Dai, Chifeng, 2009. "The appeals process in principal-agent relationships," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 451-462, August.
    19. Siemens, Ferdinand von, 2005. "Fairness, Adverse Selection, and Employment Contracts," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 58, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    20. Distefano, Rosaria, 2022. "Better to be in the same boat: Positional envy in the workplace," MPRA Paper 115396, University Library of Munich, Germany.

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