A theory of fairness, competition, and cooperation

Ernst Fehr and Klaus M. Schmidt

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained, although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selfish types dominate equilibrium behavior.

Date: 1999
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Published in Quarterly Journal of Economics 3 114(1999): pp. 817-868

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Related works:
Journal Article: A Theory of Fairness, Competition, and Cooperation (1999)
Working Paper: A Theory of Fairness, Competition and Cooperation (1998)
Chapter: A theory of fairness, competition, and cooperation
Working Paper: A Theory of Fairness, Competition and Cooperation
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