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An Experimental Game of Loss Sharing

Author

Listed:
  • Wulf Gaertner
  • Lars Schwettmann
  • Yongsheng Xu

Abstract

We conduct a lab-experimental study of bargaining over the distribution of monetary losses. Groups of four differently endowed participants must agree, as a group, on the contribution each participant will make to cover a financial loss imposed on the group. The study sheds light on burden sharing and what loss allocation rules groups adopt. Furthermore, we characterize a new theoretical model which contains the proportional rule and equality of losses as special cases but collides with the constrained equal awards rule. The combination of our model and the constrained equal awards rule can explain the majority of proposals made in our experiment.

Suggested Citation

  • Wulf Gaertner & Lars Schwettmann & Yongsheng Xu, 2017. "An Experimental Game of Loss Sharing," Experimental Economics Center Working Paper Series 2017-01, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:exc:wpaper:2017-01
    as

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    File URL: http://excen.gsu.edu/workingpapers/GSU_EXCEN_WP_2017-01.pdf
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    References listed on IDEAS

    as
    1. Herrero, Carmen & Villar, Antonio, 2001. "The three musketeers: four classical solutions to bankruptcy problems," Mathematical Social Sciences, Elsevier, vol. 42(3), pages 307-328, November.
    2. Aumann, Robert J. & Maschler, Michael, 1985. "Game theoretic analysis of a bankruptcy problem from the Talmud," Journal of Economic Theory, Elsevier, vol. 36(2), pages 195-213, August.
    3. repec:cor:louvrp:-2264 is not listed on IDEAS
    4. 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.
    5. Kristof Bosmans & Erik Schokkaert, 2009. "Equality preference in the claims problem: a questionnaire study of cuts in earnings and pensions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 33(4), pages 533-557, November.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Wulf Gaertner & Richard Bradley & Yongsheng Xu & Lars Schwettmann, 2019. "Against the proportionality principle: Experimental findings on bargaining over losses," PLOS ONE, Public Library of Science, vol. 14(7), pages 1-18, July.

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    More about this item

    Keywords

    loss sharing; axiomatic characterization of allocation rules; experimental bargain-ing;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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