Distributional Preferences, Reciprocity-Like Behavior, and Efficiency in Bilateral Exchange

Daniel Benjamin

American Economic Journal: Microeconomics, 2015, vol. 7, issue 1, 70-98

Abstract: Under what conditions do distributional preferences, such as altruism or a concern for fair outcomes, generate efficient trade? I analyze theoretically a simple bilateral exchange game: each player sequentially takes an action that reduces his own material payoff but increases the other player's. Each player's preferences may depend on both his/her own material payoff and the other player's. I identify two key properties of the second-mover's preferences: indifference curves kinked around "fair" material-payoff distributions, and materials payoffs entering preferences as "normal goods". Either property can drive reciprocity-like behavior and generate a Pareto efficient outcome. (JEL C78, D63, D64)

JEL-codes: C78 D63 D64 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/mic.20120109
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