Bargaining with a Residual Claimant: An Experimental Study

Matthew Embrey, Kyle Hyndmanz () and Arno Riedl
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Kyle Hyndmanz: Naveen Jindal School of Management, University of Texas at Dalls
Authors registered in the RePEc Author Service: Kyle Hyndman

Working Paper Series from Department of Economics, University of Sussex Business School

Abstract: Many negotiations involve risks that are only resolved ex-post, and often these risks are not incurred equally by the parties involved. We experimentally investigate bargaining situations where a residual claimant faces ex-post risk, whereas a fixed-payoff player does not. In line with the predictions of a benchmark model, we find that residual claimants extract a risk premium, which increases in risk exposure, and that this premium can be high enough to make it beneficial to bargain over a risky rather than a risk-less pie. In contrast to the model’s predictions, we find that the comparatively less risk averse residual claimants benefit the most from risk exposure and this is driven by fixed-payoff players’ adoption of weak bargaining strategies when the pie is risky. We find evidence for a behavioral mechanism where asymmetric exposure to risk between the two parties creates a wedge between their fairness ideas, which shifts agreements in favor of residual claimants but also increases bargaining friction.

Keywords: Bargaining; Ex-post Risk; Reference Points (search for similar items in EconPapers)
JEL-codes: C71 C92 D81 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-exp and nep-gth
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Related works:
Journal Article: Bargaining with a residual claimant: An experimental study (2021)
Working Paper: Bargaining with a Residual Claimant: An Experimental Study (2019)
Working Paper: Bargaining with a Residual Claimant: An Experimental Study (2014)
Working Paper: Bargaining with a residual claimant: An experimental study (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:sus:susewp:1520

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