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Fairness considerations in joint venture formation

Tanjim Hossain (), Elizabeth Lyons () and Aloysius Siow ()
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Elizabeth Lyons: University of California
Aloysius Siow: University of Toronto

Experimental Economics, 2020, vol. 23, issue 3, No 3, 632-667

Abstract: Abstract Using a series of laboratory experiments in the context of bilateral bargaining over whether and how to engage in a joint venture, this paper shows that fairness concerns result in failures to undertake profitable joint production opportunities. We find that framing an opportunity as an employment relationship rather than as a partnership significantly reduces these inefficiencies and increases subjects’ welfare. Consistent with the theoretical model developed in the paper, text analysis and a follow-up experiment demonstrate that the lower likelihood of an efficient outcome in the partnership frame is driven primarily by a concern for fairness generated by the perceived social relationship associated with partnerships, and not by differences in the economic structure, cognition, subject motivation, or changes in relative bargaining power.

Keywords: Firm formation; Fairness concerns; Cooperative bargaining; Organizational structure (search for similar items in EconPapers)
JEL-codes: C92 D83 D91 L14 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10683-019-09626-x

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