An Experimental Study on Dividing Gains through Politics

Li-Chen Hsu, Kamhon Kan (), C.C. Yang and Chun-Lei Yang

Scottish Journal of Political Economy, 2015, vol. 62, issue 5, 546-566

Abstract: type="main" xml:id="sjpe12084-abs-0001">

This article offers experimental evidence to examine an important case in politics where a monopolistic proposer seeks a majority's consent from competitive responders to split the gain. The unique subgame perfect equilibrium prediction is that the side of trade with a monopoly will exploit the side of trade with competition to reap almost all of the gain. Our experimental evidence reveals that while responders do compete with each other to race to the bottom (consistent with the prediction), the monopolistic proposer settles down to offer a ‘fair’ share of the pie to those from whom he or she seeks majority support (contrary to the prediction).

Date: 2015
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