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Leadership in the Prisoner's Dilemma with Inequity-Averse Preferences

Author

Listed:
  • Koji Abe

    (Faculty of International Social Sciences, Yokohama National University)

  • Hajime Kobayashi

    (Faculty of Economics, Kansai University)

  • Hideo Suehiro

    (Graduate School of Business Administration, Kobe University)

Abstract

We consider the economic consequences of fairness concerns under the freedom to choose the timing of moves by developing a new economic theory of leadership. We study the prisoner' s dilemma in which players are endowed with Fehr and Schmidt preferences with inequity aversion as their private information and then choose cooperation or defection once at one of two timings that they prefer. In this model, we consider an equilibrium in which a leader-follower relationship endogenously emerges as a consequence of players' heterogeneous inequity aversions. We present three results. First, we provide a sufficient condition for the existence of a leadership equilibrium. Then, we present a comparative statics analysis of the equilibrium. Finally, we investigate who takes the leadership, depending on the game parameters. We provide a characterization of the equilibrium leadership patterns. These results also hold when agents can choose the timing of moves from more than two timings.

Suggested Citation

  • Koji Abe & Hajime Kobayashi & Hideo Suehiro, 2014. "Leadership in the Prisoner's Dilemma with Inequity-Averse Preferences," Discussion Papers 2014-09, Kobe University, Graduate School of Business Administration.
    • Handle: RePEc:kbb:dpaper:2014-09
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    File URL: https://www.b.kobe-u.ac.jp/papers_files/2014_09.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Leadership; Endogenous Timing; Prisoner' s Dilemma; Inequity Aversion;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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