Rotten kids with bad intentions

Nick Netzer and Armin Schmutzler

No 919, SOI - Working Papers from Socioeconomic Institute - University of Zurich

Abstract: We examine a "Rotten Kid" model (Becker 1974) where a player with social preferences interacts with an egoistic player. We assume that social preferences are intentionbased rather than outcome-based. In a very general multi-stage setting we show that any equilibrium must involve mutually unkind behavior of both players, endogenously generating negative rather than positive emotions. In a large class of two-stage games that includes principal-agent and gift-giving games, this prevents the equilibrium from being materially Pareto efficient. Compared to the subgame-perfect equilibrium without social preferences, efficiency is still generally increased. On the other hand, the materialistic player has lower whereas the reciprocal player has higher material payoffs, so that reciprocity does not increase equity: For sufficiently strong reciprocity concerns, the materialistic player ends up with a negligible share of the gains from trade.

Keywords: Reciprocity; psychological games; moral hazard; gift giving (search for similar items in EconPapers)
JEL-codes: C72 D03 D86 J01 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2009-12, Revised 2011-11
New Economics Papers: this item is included in nep-cbe, nep-gth and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.zora.uzh.ch/id/eprint/51589/1/wp0919.pdf Revised version, 2011 (application/pdf)

Related works:
Working Paper: Rotten Kids with Bad Intentions (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:soz:wpaper:0919

Access Statistics for this paper

More papers in SOI - Working Papers from Socioeconomic Institute - University of Zurich Contact information at EDIRC.
Bibliographic data for series maintained by Severin Oswald ().