Rewards and Punishments in Bargaining

Svetlana Pevnitskaya and Dmitry Ryvkin

No wp2009_04_01, Working Papers from Department of Economics, Florida State University

Abstract: Bargaining fails when participants do not reach an agreement despite an opportunity for Pareto improvement. Numerous experimental studies found that in asymmetric bargaining, where one party proposes the terms and the other can accept or reject the proposal, low offers are typically rejected. We conduct an experiment where upon acceptance the responding party can apply costly rewards and/or punishments, and find that the likelihood of acceptance increases. The least generous offers have the highest chance to be accepted in the presence of punishment alone. Proposers are most generous when responders can both reward and punish, and offer least (even compared to the baseline) when responders can only reward. The optimal scheme of rewards and punishments varies with the population of proposers, indicating that the appropriate scheme can potentially compensate for a mismatch between proposers' and responders' social norms.

Keywords: bargaining; rewards and punishments; experimental economics; ultimatum (search for similar items in EconPapers)
JEL-codes: C78 C90 D03 (search for similar items in EconPapers)
Pages: 32
Date: 2009-04
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp, nep-gth and nep-soc
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