Social Welfare versus Inequality Concerns in an Incomplete Contract Experiment

Marco Faravelli, Oliver Kirchkamp and Helmut Rainer

No 2933, CESifo Working Paper Series from CESifo

Abstract: We study a situation where two players first choose a sharing rule, then invest into a joint production process, and then split joint benefits. We investigate how social preferences determine investments. In our experiment we find that even the materially disadvantaged player cares more for social welfare than about inequality. Behavioral preferences of disadvantaged players actually increase inequality. We also investigate when players give up an advantageous sharing rule. Power-sharing can be successful in the experiment, even when it is not in a selfish world.

Keywords: experiments; incomplete contracts; relationship-specific investment; allocation of power; social preferences (search for similar items in EconPapers)
JEL-codes: C91 D23 D86 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2933

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