Estimating a Parsimonious Model of Inequality Aversion in Stackelberg Duopoly Experiments

Sau‐Him Paul Lau and Felix Leung

Oxford Bulletin of Economics and Statistics, 2010, vol. 72, issue 5, 669-686

Abstract: In the Stackelberg duopoly experiments in Huck et al. (2001), nearly half of the followers’ behaviours are inconsistent with conventional prediction. We use a test in which the conventional self‐interested model is nested as a special case of an inequality aversion model. Maximum likelihood methods applied to the Huck et al. (2001) data set reject the self‐interested model. We find that almost 40% of the players have disadvantageous inequality aversion that is statistically different from zero and economically significant, but advantageous inequality aversion is relatively unimportant. These estimates provide support for a more parsimonious model with no advantageous inequality aversion.

Date: 2010
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