IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/40761.html
   My bibliography  Save this paper

Envy can promote more equal division in alternating-offer bargaining

Author

Listed:
  • Kohler, Stefan

Abstract

Bargainers in an open-ended alternating-offer bargaining situation may perceive envy, a utility loss caused by receiving the smaller share that is modeled in some social preferences in addition to self-interest. I extend Rubinstein (1982)'s original solution of the bargaining problem for two self-interested bargainers to this strategic situation. Bargainers still reach agreement in the first period and their bargaining shares increase in the strength of their own envy. As both bargainers' envy diminishes, the agreed partition converges to the Rubinstein division. If equally patient bargaining parties exhibit similar envy, then the agreed partition is tilted away from the Rubinstein division towards the equal division. Notably, the potential sensation of envy also boosts the share of the eventually envy-free party who leaves the bargaining with the larger share under the agreed partition. This gain in bargaining strength through envy can result in a bargaining outcome that is more unequal than predicted by the Rubinstein division.

Suggested Citation

  • Kohler, Stefan, 2012. "Envy can promote more equal division in alternating-offer bargaining," MPRA Paper 40761, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:40761
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/40761/1/MPRA_paper_40761.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Maria Montero, 2007. "Inequity Aversion May Increase Inequity," Economic Journal, Royal Economic Society, vol. 117(519), pages 192-204, March.
    3. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-1136, December.
    4. 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.
    5. Topi Miettinen, 2010. "History-dependent Reciprocity in Alternating Offer Bargaining," Finnish Economic Papers, Finnish Economic Association, vol. 23(1), pages 1-15, Spring.
    6. Ken Binmore & Avner Shared & John Sutton, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 753-770.
    7. Li, Duozhe, 2007. "Bargaining with history-dependent preferences," Journal of Economic Theory, Elsevier, vol. 136(1), pages 695-708, September.
    8. Dorothea Herreiner & Clemens Puppe, 2009. "Envy Freeness in Experimental Fair Division Problems," Theory and Decision, Springer, vol. 67(1), pages 65-100, July.
    9. Driesen, Bram & Perea, Andrés & Peters, Hans, 2012. "Alternating offers bargaining with loss aversion," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 103-118.
    10. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
    11. Arnaud De Bruyn & Gary E. Bolton, 2008. "Estimating the Influence of Fairness on Bargaining Behavior," Management Science, INFORMS, vol. 54(10), pages 1774-1791, October.
    12. Weg, Eythan & Rapoport, Amnon & Felsenthal, Dan S., 1990. "Two-person bargaining behavior in fixed discounting factors games with infinite horizon," Games and Economic Behavior, Elsevier, vol. 2(1), pages 76-95, March.
    13. Stefan Kohler, 2014. "Guilt causes equal or unequal division in alternating-offer bargaining," Economics Bulletin, AccessEcon, vol. 34(3), pages 1611-1617.
    14. Stefan Kohler, 2012. "Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining," Games, MDPI, vol. 3(3), pages 1-19, September.
    15. Maria Montero, 2008. "Altruism, Spite and Competition in Bargaining Games," Theory and Decision, Springer, vol. 65(2), pages 125-151, September.
    16. Stefan Kohler, 2013. "More Fair Play in an Ultimatum Game after Resettlement in Zimbabwe: A Field Experiment and a Structural Model," PLOS ONE, Public Library of Science, vol. 8(5), pages 1-12, May.
    17. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-1364, November.
    18. Binmore, Ken & Morgan, Peter & Snaked, Avner & Sutton, John, 1991. "Do people exploit their bargaining power? An experimental study," Games and Economic Behavior, Elsevier, vol. 3(3), pages 295-322, August.
    19. Kohler, Stefan, 2011. "Altruism and fairness in experimental decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 101-109.
    20. Olivier Compte & Philippe Jehiel, 2004. "Gradualism in Bargaining and Contribution Games," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(4), pages 975-1000.
    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. Stefan Kohler & Karl H. Schlag, 2019. "Inequality Aversion Causes Equal Or Unequal Division In Alternating‐Offer Bargaining," Bulletin of Economic Research, Wiley Blackwell, vol. 71(1), pages 47-57, January.
    2. Stefan Kohler, 2014. "Guilt causes equal or unequal division in alternating-offer bargaining," Economics Bulletin, AccessEcon, vol. 34(3), pages 1611-1617.
    3. Stefan Kohler, 2012. "Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining," Games, MDPI, vol. 3(3), pages 1-19, September.
    4. Guha, Brishti, 2018. "Malice in the Rubinstein bargaining game," Mathematical Social Sciences, Elsevier, vol. 94(C), pages 82-86.
    5. Martin A. Leroch, 2015. "Rubinstein Bargaining with Other-Regarding Preferences," Working Papers 1509, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.

    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. Stefan Kohler & Karl H. Schlag, 2019. "Inequality Aversion Causes Equal Or Unequal Division In Alternating‐Offer Bargaining," Bulletin of Economic Research, Wiley Blackwell, vol. 71(1), pages 47-57, January.
    2. Stefan Kohler, 2012. "Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining," Games, MDPI, vol. 3(3), pages 1-19, September.
    3. Stefan Kohler, 2014. "Guilt causes equal or unequal division in alternating-offer bargaining," Economics Bulletin, AccessEcon, vol. 34(3), pages 1611-1617.
    4. Miettinen, Topi & Perea, Andrés, 2015. "Commitment in alternating offers bargaining," Mathematical Social Sciences, Elsevier, vol. 76(C), pages 12-18.
    5. Sebastian Schweighofer-Kodritsch, 2015. "Time Preferences and Bargaining," STICERD - Theoretical Economics Paper Series /2015/568, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    6. Christian Ewerhart, 2006. "The Effect of Sunk Costs on the Outcome of Alternating-Offers Bargaining Between Inequity-Averse Agents," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 58(2), pages 184-203, April.
    7. Binmore, Ken & McCarthy, John & Ponti, Giovanni & Samuelson, Larry & Shaked, Avner, 2002. "A Backward Induction Experiment," Journal of Economic Theory, Elsevier, vol. 104(1), pages 48-88, May.
    8. Britz, V., 2010. "Optimal value commitment in bilateral bargaining," Research Memorandum 056, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    9. Zhongwei Feng & Chunqiao Tan & Jinchun Zhang & Qiang Zeng, 2021. "Bargaining Game with Altruistic and Spiteful Preferences," Group Decision and Negotiation, Springer, vol. 30(2), pages 277-300, April.
    10. Yadi Yang, 2021. "A Survey Of The Hold‐Up Problem In The Experimental Economics Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 35(1), pages 227-249, February.
    11. Nejat Anbarci & Nick Feltovich, 2013. "How responsive are people to changes in their bargaining position? Earned bargaining power and the 50–50 norm," EcoMod2013 5855, EcoMod.
    12. Sigbjørn Birkeland & Bertil Tungodden, 2014. "Fairness motivation in bargaining: a matter of principle," Theory and Decision, Springer, vol. 77(1), pages 125-151, June.
    13. Navarro, Noemí & Veszteg, Róbert F., 2020. "On the empirical validity of axioms in unstructured bargaining," Games and Economic Behavior, Elsevier, vol. 121(C), pages 117-145.
    14. Gary Bolton & Jeannette Brosig-Koch, 2012. "How do coalitions get built? Evidence from an extensive form coalition game with and without communication," International Journal of Game Theory, Springer;Game Theory Society, vol. 41(3), pages 623-649, August.
    15. Zwick, Rami & Rapoport, Amnon & Weg, Eythan, 2000. "Invariance failure under subgame perfectness in sequential bargaining," Journal of Economic Psychology, Elsevier, vol. 21(5), pages 517-544, October.
    16. Alós-Ferrer, Carlos & Ritzberger, Klaus, 2021. "Multi-lateral strategic bargaining without stationarity," Journal of Mathematical Economics, Elsevier, vol. 97(C).
    17. Nejat Anbarci & Nick Feltovich, 2013. "How sensitive are bargaining outcomes to changes in disagreement payoffs?," Experimental Economics, Springer;Economic Science Association, vol. 16(4), pages 560-596, December.
    18. Tarık Kara & Emin Karagözoğlu & Elif Özcan-Tok, 2021. "Bargaining, Reference Points, and Limited Influence," Dynamic Games and Applications, Springer, vol. 11(2), pages 326-362, June.
    19. Breitmoser, Yves & Tan, Jonathan H.W., 2010. "Generosity in bargaining: Fair or fear?," MPRA Paper 27444, University Library of Munich, Germany.
    20. Karagözoğlu, Emin & Keskin, Kerim, 2018. "Time-varying fairness concerns, delay, and disagreement in bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 147(C), pages 115-128.

    More about this item

    Keywords

    alternating offers; bargaining; bargaining power; behavioral economics; envy; equity; fairness; inequality aversion; negotiation; social preferences;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:pra:mprapa:40761. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.