Bargaining with a residual claimant: An experimental study
Kyle Hyndman and
Games and Economic Behavior, 2021, vol. 126, issue C, 335-354
Many negotiations involve risks that are resolved ex-post. 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. Consistent with a benchmark model, we find that residual claimants extract a risk premium, which increases in risk exposure. This premium can be high enough to make it beneficial to bargain over a risky rather than a risk-less pie. Contrary to the model's predictions, we find that the comparatively less risk averse residual claimants benefit the most from risk exposure. This is because fixed-payoff players' adopt weak bargaining strategies when the pie is risky. We find evidence for a behavioural mechanism where asymmetric exposure to risk between the two parties creates a wedge between their fairness ideas, which shifts agreements in favour 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)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Bargaining with a Residual Claimant: An Experimental Study (2020)
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)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:126:y:2021:i:c:p:335-354
Access Statistics for this article
Games and Economic Behavior is currently edited by E. Kalai
More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().