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

Koji Abe, Hajime Kobayashi and Hideo Suehiro
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Koji Abe: Faculty of International Social Sciences, Yokohama National University
Hideo Suehiro: Graduate School of Business Administration, Kobe University

No 2014-09, Discussion Papers from Kobe University, Graduate School of Business Administration

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.

Keywords: Leadership; Endogenous Timing; Prisoner' s Dilemma; Inequity Aversion (search for similar items in EconPapers)
JEL-codes: C72 D03 D82 (search for similar items in EconPapers)
Pages: 78 pages
Date: 2014-05
New Economics Papers: this item is included in nep-cta, nep-gth, nep-hpe and nep-mic
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