Hold-up induced by demand for fairness: theory and experimental evidence

Raghabendra Pratap Kc (), Dominique Olié Lauga () and Vincent Mak ()
Additional contact information
Raghabendra Pratap Kc: Rollins College
Dominique Olié Lauga: University of Cambridge
Vincent Mak: University of Cambridge

Theory and Decision, 2023, vol. 94, issue 4, No 7, 750 pages

Abstract: Abstract Research in recent years suggests that fairness concerns could mitigate hold-up problems. In this study, we report theoretical analysis and experimental evidence on an opposite possibility: that fairness concerns could also induce hold-up problems. In our setup, hold-up problems will not occur with purely self-interested agents, but theoretically could be induced by demand for distributional fairness among agents without sufficiently strong counteracting factors such as intention-based reciprocity. We observe a widespread occurrence of hold-up in our experiment. Relationship-specific investments occurred less than half of the time, resulting in significant inefficiencies. Moreover, whenever a relationship-specific investment was made: (a) it was typically not reciprocated by the partner; (b) nor did the investor’s offers at the bargaining stage exhibit expectations for reciprocity. Consequently, the partner extracted all the additional expected payoff from relationship-specific investments. Further experimentation suggested that our results were driven by a fundamental lack of intention-based reciprocity in fairness concerns, rather than self-serving bias.

Keywords: Hold-up; Fairness; Relationship-specific investments; Games; Experiments (search for similar items in EconPapers)
JEL-codes: C72 C92 D63 L14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11238-022-09905-9 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:theord:v:94:y:2023:i:4:d:10.1007_s11238-022-09905-9

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/11238/PS2

DOI: 10.1007/s11238-022-09905-9

Access Statistics for this article

Theory and Decision is currently edited by Mohammed Abdellaoui

More articles in Theory and Decision from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().