IDEAS home Printed from https://ideas.repec.org/a/eee/gamebe/v115y2019icp209-224.html
   My bibliography  Save this article

Fair share and social efficiency: A mechanism in which peers decide on the payoff division

Author

Listed:
  • Dong, Lu
  • Falvey, Rod
  • Luckraz, Shravan

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 efficiency can be achieved under this simple mechanism and, in a controlled laboratory experiment, we find that players reward others based on relative contributions in most cases and that the players' contributions improve substantially and almost immediately with 80 percent of players contributing fully.

Suggested Citation

  • Dong, Lu & Falvey, Rod & Luckraz, Shravan, 2019. "Fair share and social efficiency: A mechanism in which peers decide on the payoff division," Games and Economic Behavior, Elsevier, vol. 115(C), pages 209-224.
    • Handle: RePEc:eee:gamebe:v:115:y:2019:i:c:p:209-224
    DOI: 10.1016/j.geb.2019.02.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0899825619300351
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.geb.2019.02.016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 817-869.
    3. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    4. Yasuyo Hamaguchi & Satoshi Mitani & Tatsuyoshi Saijo, 2003. "Does the Varian Mechanism Work?--Emissions Trading as an Example," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 2(2), pages 85-96, August.
    5. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
    6. Baron, David P. & Ferejohn, John A., 1989. "Bargaining in Legislatures," American Political Science Review, Cambridge University Press, vol. 83(4), pages 1181-1206, December.
    7. Andreoni,J. & Varian,H., 1999. "Pre-play contracting in the prisoners' dilemma," Working papers 18, Wisconsin Madison - Social Systems.
    8. Ben Greiner, 2015. "Subject pool recruitment procedures: organizing experiments with ORSEE," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 1(1), pages 114-125, July.
    9. Roland Bénabou & Jean Tirole, 2011. "Identity, Morals, and Taboos: Beliefs as Assets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(2), pages 805-855.
    10. Alexander W. Cappelen & James Konow & Erik ?. S?rensen & Bertil Tungodden, 2013. "Just Luck: An Experimental Study of Risk-Taking and Fairness," American Economic Review, American Economic Association, vol. 103(4), pages 1398-1413, June.
    11. Richard B. Freeman, 2008. "When Workers Share in Profits: Effort and Responses to Shirking," 'Angelo Costa' Lectures Serie, SIPI Spa, issue Lect. IX.
    12. Bracht, Juergen & Figuieres, Charles & Ratto, Marisa, 2008. "Relative performance of two simple incentive mechanisms in a public goods experiment," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 54-90, February.
    13. Chen, Yan, 2008. "Incentive-compatible Mechanisms for Pure Public Goods: A Survey of Experimental Research," Handbook of Experimental Economics Results, in: Charles R. Plott & Vernon L. Smith (ed.), Handbook of Experimental Economics Results, edition 1, volume 1, chapter 67, pages 625-643, Elsevier.
    14. Croson, Rachel T. A., 1996. "Partners and strangers revisited," Economics Letters, Elsevier, vol. 53(1), pages 25-32, October.
    15. Martin Sefton & Robert Shupp & James M. Walker, 2007. "The Effect Of Rewards And Sanctions In Provision Of Public Goods," Economic Inquiry, Western Economic Association International, vol. 45(4), pages 671-690, October.
    16. Fischbacher, Urs & Gachter, Simon & Fehr, Ernst, 2001. "Are people conditionally cooperative? Evidence from a public goods experiment," Economics Letters, Elsevier, vol. 71(3), pages 397-404, June.
    17. Alexander W. Cappelen & Astri Drange Hole & Erik Ø Sørensen & Bertil Tungodden, 2007. "The Pluralism of Fairness Ideals: An Experimental Approach," American Economic Review, American Economic Association, vol. 97(3), pages 818-827, June.
    18. James Konow, 2009. "Is fairness in the eye of the beholder? An impartial spectator analysis of justice," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 33(1), pages 101-127, June.
    19. Yan Chen & Robert Gazzale, 2004. "When Does Learning in Games Generate Convergence to Nash Equilibria? The Role of Supermodularity in an Experimental Setting," American Economic Review, American Economic Association, vol. 94(5), pages 1505-1535, December.
    20. repec:dau:papers:123456789/4809 is not listed on IDEAS
    21. Cox, James C. & Friedman, Daniel & Gjerstad, Steven, 2007. "A tractable model of reciprocity and fairness," Games and Economic Behavior, Elsevier, vol. 59(1), pages 17-45, April.
    22. Masuda, Takehito & Okano, Yoshitaka & Saijo, Tatsuyoshi, 2014. "The minimum approval mechanism implements the efficient public good allocation theoretically and experimentally," Games and Economic Behavior, Elsevier, vol. 83(C), pages 73-85.
    23. Urs Fischbacher & Simon Gachter, 2010. "Social Preferences, Beliefs, and the Dynamics of Free Riding in Public Goods Experiments," American Economic Review, American Economic Association, vol. 100(1), pages 541-556, March.
    24. Andrzej Baranski, 2016. "Voluntary Contributions and Collective Redistribution," American Economic Journal: Microeconomics, American Economic Association, vol. 8(4), pages 149-173, November.
    25. Myerson, Roger B., 2013. "Fundamentals of Social Choice Theory," Quarterly Journal of Political Science, now publishers, vol. 8(3), pages 305-337, June.
    26. Heywood, John S. & Jirjahn, Uwe, 2009. "Profit sharing and firm size: The role of team production," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 246-258, August.
    27. Nikiforakis, Nikos, 2008. "Punishment and counter-punishment in public good games: Can we really govern ourselves," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 91-112, February.
    28. Simon Gächter & Arno Riedl, 2006. "Dividing Justly in Bargaining Problems with Claims," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 27(3), pages 571-594, December.
    29. James Konow, 2000. "Fair Shares: Accountability and Cognitive Dissonance in Allocation Decisions," American Economic Review, American Economic Association, vol. 90(4), pages 1072-1091, September.
    30. Laffont, Jean-Jacques, 1987. "Incentives and the allocation of public goods," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 10, pages 537-569, Elsevier.
    31. Daniele Nosenzo & Martin Sefton, 2012. "Promoting Cooperation: the Distribution of Reward and Punishment Power," Discussion Papers 2012-08, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    32. Josef Falkinger, 2000. "A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence," American Economic Review, American Economic Association, vol. 90(1), pages 247-264, March.
    33. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    34. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    35. Stoddard, Brock & Walker, James M. & Williams, Arlington, 2014. "Allocating a voluntarily provided common-property resource: An experimental examination," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 141-155.
    36. Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September.
    37. James Andreoni & William Harbaugh & Lise Vesterlund, 2003. "The Carrot or the Stick: Rewards, Punishments, and Cooperation," American Economic Review, American Economic Association, vol. 93(3), pages 893-902, June.
    38. Konow, James, 1996. "A positive theory of economic fairness," Journal of Economic Behavior & Organization, Elsevier, vol. 31(1), pages 13-35, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Karakostas, Alexandros & Kocher, Martin G. & Matzat, Dominik & Rau, Holger A. & Riewe, Gerhard, 2023. "The team allocator game: Allocation power in public goods games," Games and Economic Behavior, Elsevier, vol. 140(C), pages 73-87.
    2. Andrzej Baranski, 2019. "Endogenous claims and collective production: an experimental study on the timing of profit-sharing negotiations and production," Experimental Economics, Springer;Economic Science Association, vol. 22(4), pages 857-884, December.
    3. Chong Wang & Mingli Zheng, 2023. "Profit sharing with a contest among agents," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 244-250, January.
    4. Andrzej Baranski & Caleb A. Cox, 2019. "Communication in Multilateral Bargaining with Joint Production," Working Papers 20190032, New York University Abu Dhabi, Department of Social Science, revised Nov 2019.
    5. Klaus Abbink & Lu Dong & Lingbo Hugang, 2018. "Talking Behind Your Back: Asymmetric Communication in a Three-person Dilemma," Discussion Papers 2018-11, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    6. Rod Falvey & Tom Lane & Shravan Luckraz, 2022. "On a mechanism that improves efficiency and reduces inequality in voluntary contribution games," Discussion Papers 2022-15, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    7. Cox, Caleb A. & Stoddard, Brock, 2024. "Inequality and the allocation of collective goods," Journal of Economic Behavior & Organization, Elsevier, vol. 220(C), pages 756-767.
    8. Klaus Abbink & Lu Dong & Lingbo Huang, 2022. "Talking Behind Your Back: Communication and Team Cooperation," Management Science, INFORMS, vol. 68(7), pages 5187-5200, July.
    9. Andrzej Baranski & Caleb A. Cox, 2023. "Communication in multilateral bargaining with joint production," Experimental Economics, Springer;Economic Science Association, vol. 26(1), pages 55-77, March.
    10. Lu Dong & Lingbo Huang, 2018. "Favoritism and Fairness in Teams," Games, MDPI, vol. 9(3), pages 1-15, September.
    11. Brock V. Stoddard & Caleb A. Cox & James M. Walker, 2021. "Incentivizing provision of collective goods: Allocation rules," Southern Economic Journal, John Wiley & Sons, vol. 87(4), pages 1345-1365, April.
    12. Sasan Maleki & Talal Rahwan & Siddhartha Ghosh & Areej Malibari & Daniyal Alghazzawi & Alex Rogers & Hamid Beigy & Nicholas R Jennings, 2020. "The Shapley value for a fair division of group discounts for coordinating cooling loads," PLOS ONE, Public Library of Science, vol. 15(1), pages 1-28, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rod Falvey & Tom Lane & Shravan Luckraz, 2022. "On a mechanism that improves efficiency and reduces inequality in voluntary contribution games," Discussion Papers 2022-15, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    2. Karakostas, Alexandros & Kocher, Martin G. & Matzat, Dominik & Rau, Holger A. & Riewe, Gerhard, 2023. "The team allocator game: Allocation power in public goods games," Games and Economic Behavior, Elsevier, vol. 140(C), pages 73-87.
    3. Reuben, Ernesto & Riedl, Arno, 2013. "Enforcement of contribution norms in public good games with heterogeneous populations," Games and Economic Behavior, Elsevier, vol. 77(1), pages 122-137.
    4. Gangadharan, Lata & Nikiforakis, Nikos & Villeval, Marie Claire, 2017. "Normative conflict and the limits of self-governance in heterogeneous populations," European Economic Review, Elsevier, vol. 100(C), pages 143-156.
    5. Emin Karagözoglu & Arno Riedl, 2010. "Information, Uncertainty, and Subjective Entitlements in Bargaining," CESifo Working Paper Series 3133, CESifo.
    6. Mollerstrom, Johanna & Reme, Bjørn-Atle & Sørensen, Erik Ø., 2015. "Luck, choice and responsibility — An experimental study of fairness views," Journal of Public Economics, Elsevier, vol. 131(C), pages 33-40.
    7. Dickinson, David L. & Masclet, David & Villeval, Marie Claire, 2015. "Norm enforcement in social dilemmas: An experiment with police commissioners," Journal of Public Economics, Elsevier, vol. 126(C), pages 74-85.
    8. Bigoni, Maria & Bortolotti, Stefania & Nas Özen, Efşan, 2021. "Economic polarization and antisocial behavior: An experiment," Games and Economic Behavior, Elsevier, vol. 126(C), pages 387-401.
    9. Kurt A. Ackermann & Ryan O. Murphy, 2019. "Explaining Cooperative Behavior in Public Goods Games: How Preferences and Beliefs Affect Contribution Levels," Games, MDPI, vol. 10(1), pages 1-34, March.
    10. Engel, Christoph & Kube, Sebastian & Kurschilgen, Michael, 2021. "Managing expectations: How selective information affects cooperation and punishment in social dilemma games," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 111-136.
    11. Felix Koelle, 2012. "Heterogeneity and Cooperation in Privileged Groups: The Role of Capability and Valuation on Public Goods Provision," Cologne Graduate School Working Paper Series 03-08, Cologne Graduate School in Management, Economics and Social Sciences.
    12. Boosey, Luke & Isaac, R. Mark & Ramalingam, Abhijit, 2024. "Limiting the leader: Fairness concerns and opportunism in team production," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 209-244.
    13. Simon Gaechter, 2014. "Human Pro-Social Motivation and the Maintenance of Social Order," Discussion Papers 2014-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    14. Pablo Guillen & Danielle Merrett & Robert Slonim, 2015. "A New Solution for the Moral Hazard Problem in Team Production," Management Science, INFORMS, vol. 61(7), pages 1514-1530, July.
    15. Theodore Eisenberg & Christoph Engel, 2012. "Assuring Adequate Deterrence in Tort: A Public Good Experiment," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2012_07, Max Planck Institute for Research on Collective Goods.
    16. Luigi Butera & John A. List, 2017. "An Economic Approach to Alleviate the Crises of Confidence in Science: With an Application to the Public Goods Game," NBER Working Papers 23335, National Bureau of Economic Research, Inc.
    17. Ananish Chaudhuri, 2011. "Sustaining cooperation in laboratory public goods experiments: a selective survey of the literature," Experimental Economics, Springer;Economic Science Association, vol. 14(1), pages 47-83, March.
    18. Gantner, Anita & Horn, Kristian & Kerschbamer, Rudolf, 2016. "Fair and efficient division through unanimity bargaining when claims are subjective," Journal of Economic Psychology, Elsevier, vol. 57(C), pages 56-73.
    19. Urs Fischbacher & Simon Gaechter, 2008. "Heterogeneous Social Preferences And The Dynamics Of Free Riding In Public Good Experiments," Discussion Papers 2008-07, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    20. Fehr, Ernst & Powell, Michael & Wilkening, Tom, 2021. "Behavioral Constraints on the Design of Subgame-Perfect Implementation Mechanisms," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 111(4), pages 1055-1091.

    More about this item

    Keywords

    Experimental economics; Fairness; Mechanism design;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:115:y:2019:i:c:p:209-224. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.