Redistributive policies with heterogeneous social preferences of voters sanjit dhamiy ali alnowaihiz 21 december 2009 abstract there is growing evidence on the roles of fairness and otherregarding preferences as fundamental human motives. Redistributive policies with heterogeneous social preferences. This paper provides a preference foundation for exactly the model of fs with preference conditions that exactly capture the. In 2001, schmidt was awarded the gossen prize in recognition for his contributions to economic research on game theory, contract theory and the economics of fairness. Binmore and shaked also point out that fehr and schmidt 1999 pick a distribution of alpha and beta without conducting a formal estimation. As a consequence, the existence of an opportunity for costly punishment causes a large increase in cooperation levels because. The theory of inequity aversion assumes that some but not all agents su.
The fehrschmidt model has the attractive feature of being very simple, but it misses. The more free riders negatively deviate from the group standard the more they are punished. The perfect correlation between the alpha and beta parameters in fehr and schmidt 1999 is an assumption made in the appendix of their paper that is not justified by the data that they provide. The present research tests whether the two are connected whether. A second nonstrategic reason to punish group members is inequality aversion fehr and schmidt 1999. The value of this social utility function lies in its exceptionally good balance between parsimony and fit. A t h eory of f airn ess, c om p etition an d c oop. This paper asks whe ther there is a simple common principle that can explain this puzzling. Prosocial behavior increases perceptions of meaning in life nadav klein harris school of public policy, university of chicago, chicago, il, usa abstract finding meaning in life is a fundamental personal need, and motivating prosocial behavior is a fundamental societal need. However, the models predictive power is highly reduced if subjects. Direct tests of models of social preferences and a new model.
Pdf a theory of fairness, competition and cooperation. Schmidt, a theory of fairness, competition, and cooperation, the quarterly journal of economics. Fairness, reciprocity, inequity, competition, cooperation jelclassification. The former is the typical model where agents have distributional concerns, while the latter is explicitly modelling intentions. Dissociating guilt and inequityaversion in cooperation and. Schmidt there is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. The theory of inequity aversion fehr and schmidt, 1999 was. In the first step, subjects played modified ultimatum and dictator games and were classified according to their preferences. Bolton and ockenfels 2000 and fehr and schmidt 1999 are prominent. Fehr and schmidt fs introduced an influential social utility function for individuals in interpersonal contexts that captures selfcentered inequity aversion.
We present a simple twosteps procedure for a withinsubject test of the inequity aversion model of fehr and schmidt 1999. Building on fehr and schmidt 1999, we here investigate connections between social. There is also strong evidence that people exploit free. There is also strong evidence that people exploit free riding opportunities in voluntary cooperation games. In section 5, we discuss the difference between the distribution of preferences used in fs 1999 and that in fehr and schmidt 2004, fehr et al. To give standard theory a fair chance, in a rst step we tie our hands by considering the distribution of inequity parameters that was derived by fehr and schmidt 1999 from inspection of ultimatum. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained although punishment is costly for those. Are people inequality averse, and do they prefer redistribution by the state. Fehr and schmidt 1999 and bolton and ockenfels 2000 show how individual preferences for equity, reciprocity and cooperation can lead to fairness equilibria. Formally, we analyze how inequity aversion as formulated by fehr and schmidt 1999 interacts with risk aversion in an otherwise standard moral hazard model with multiple agents. Schmidt there is strong evidence that people exploit their bargaining power in. Inequity aversion and individual behavior in public good.
In the next section i use the model of fehr and schmidt 1999 to show that inequality aversion predicts antisocial punishment in many cases. An aspirationshomeostasis theory of interactive decisions. Pdf the economics of fairness, reciprocity and altruism. We show that inequality aversion may indeed select the grand organization, either as a strict or even as the unique organizational equilibrium. A theory of fairness, competition and cooperation, iew working papers 004, institute for empirical research in economics university of zurich. Moreover, punishment of free riders actually occurs and drives the. The theory of inequity aversion fehr and schmidt, 1999 was developed to solve a puzzle. Using a laboratory experiment, we study the predictive power of the fehrschmidt 1999 model of inequity aversion and its robustness to reciprocity and stakes. In most economic accounts of individual behavior and aggregate social phenomena, the vast forces of greed arrow, 1980 are put at the center of the explanation.
Ernst fehr experimental and behavioral economics 11 facts largely consistent with the standard. Jul 10, 2009 fehr and schmidt fs introduced an influential social utility function for individuals in interpersonal contexts that captures selfcentered inequity aversion. Prosocial behavior increases perceptions of meaning in life. Contracting under incomplete information and social. Call voters with fair preferences, as in fehr schmidt 1999, fairvoters. That is, the inequity aversion comes from the unfair allocations between the two parties rather than subjects themselves zhong, chark, hsu. D0, c7, c91, c92, h41, d64 institute for empirical research in economics department of economics university of zurich university of munich. Strong reciprocity and human sociality umass amherst. The present paper proposes a new theory of decision making in interactive situation and tests its prediction using data from several experimental games, with special focus on the ultimatum game. Applications to the dg, ug, proposer competition, responder competition, threeperson ugs, pg with and without punishment. For a further discussion of gift exchange games in. Some recent experimental papers by fehr, rabin and others suggest very strongly that a convincing model of fairness should include some role for intentions.
Individuals who care about how their contribution compares to the contributions of others are led by motivations of social comparison. The quarterly journal of economics, volume 114, issue 3, august 1999. More recently, several papers have estimated fehr schmidt inequity aversion parameters using estimation techniques such as maximum likelihood. This paper shows that reciprocity has powerful implications for many economic domains. As a consequence, the existence of an opportunity for costly punishment causes a large increase in cooperation levels because potential free riders face a credible threat.
Social preferences and social curiosity weiwei tasch and daniel houser 1 oct. Another is called otherregarding inequity, defined as the absolute payoff difference between the proposer and the receiver. Fairness, incentives and contractual incompleteness. Consider a situation where i cooperative players are faced with a free rider and ii not all cooperators are willing to punish the free. Fehr and schmidt 1999 argue that markets are comprised of. The authors specifically compared psychological payoffs arising from inequitable distributional outcomes i. The punishment motive in the boltonockenfels model. One player the proposer proposes to the other player the responder an allocation of a fixed sum here of 20 points. We find stronger evidence for the models predictive power at the individual level than what the existing literature suggests.
The distinguishing characteristic of inequality aversion models is that utility is decreasing with the difference between ones own and others material payoffs. A prime example of a social dilemma is modeled in the wellknown ultimatum game gueth et al. The quarterly journal of economics, august 1999, 817868. Yet, when they are given the opportunity to punish free riders, stable. Jun 17, 2015 the authors specifically compared psychological payoffs arising from inequitable distributional outcomes i. Learning to reach agreement in a continuous ultimatum game.
Fehr and schmidt qje 1999 fs bolton and ockenfels aer 2000 bo. Theory of fairness, competition, and cooperation the. Combining fehrschmidt with the quantal response equilibrium approach the boltonockenfels model. Direct tests of models of social preferences and a new. In the churches, prestige might lead to higher contributions when baskets. A preference foundation for fehr and schmidts model of. But rabins paper seems somewhat hard to make operational outside of a limited class of games. This paper provides evidence that free riders are heavily punished even if punishment is costly and does not provide any material benefits for the punisher. Applications to the dg, ug, proposer competition, responder competition, threeperson ugs. The economics of reciprocity ernst fehr and simon ga. Rabin, 1993, few specific testable predictions have been made regarding the stimuli that function as inputs for psychological mechanisms involved in the decisionmaking processes giving rise to such patterns but see kurzban, 2001. Moreover, punishment of free riders actually occurs and drives the behaviour in. Stated and revealed inequality aversion in three subject pools.
In the second step, subjects with specific preferences according to the fehr and schmidt model were matched into pairs and interacted with each. Conditions the fehr and schmidt 1999 model predicts. Inequity aversion and moral hazard with multiple agents. There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. Schmidt 1999 is characterized by free parameters that measure a subjects degree of advantageous and disadvantageous inequity aversion. The responder is then free to return anything between zero and 3z to the. More recently, several papers have estimated fehrschmidt inequity aversion parameters using estimation techniques such as maximum likelihood. A theory of fairness, competition, and cooperation, the quarterly journal of economics, 114 3, aug, pp 817868 schwarze j. Schmidt born june 16, 1961 is a german economist who currently works as professor of economics at the university of munich lmu. Kirchsteiger, 1999, falk and fischbacher, 1999, and charness and rabin, 2002. It is an important determinant in the enforcement of contracts and social norms and. One child in the youngest group and two in the oldest group were excluded from the final analysis due to missing data from either a camera malfunction or a. Cooperation and punishment in public goods experiments.
Why do most experimental subjects behave very selfishly in some games, e. His research focuses on behavioural economics, game theory and contract theory. A theory of fairness, competition and cooperation ernst fehr and klaus m. Neural modulation of social distance on thirdparty punishment. A theory of fairness, competition, and cooperation.
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