Bargaining with a Residual Claimant: An Experimental Study
Kyle Hyndman () and
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Kyle Hyndman: Naveen Jindal School of Management, University of Texas at Dallas, USA
Working Paper Series from Department of Economics, University of Sussex Business School
Most negotiations involve risks that are only resolved ex-post and often these risks are not incurred equally by the parties involved. We experimentally investigate bargaining situations where a residual claimant is exposed to ex-post risk, whereas a fixedpayoff player is not. We find that residual claimants extract a risk premium, which increases in risk exposure and that this premium is sometimes high enough to make it beneficial to bargain over a risky rather than a risk-less pie. In contrast to predictions of a benchmark model, it is the comparatively less risk averse residual claimants who benefit the most and this is driven by fixed-payoff player's adoption of weak bargaining strategies when the pie is risky. It is also the less risk averse who, when given the choice, choose to bargain over a riskier distribution. We also show that as risk increases, conflict about what constitutes a fair compensation for risk exposure is enhanced, which increases bargaining frictions.
Keywords: Bargaining; Ex-post Risk; Reference Points (search for similar items in EconPapers)
JEL-codes: C71 C92 D81 (search for similar items in EconPapers)
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Working Paper: Bargaining with a Residual Claimant: An Experimental Study (2014)
Working Paper: Bargaining with a residual claimant: An experimental study (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:sus:susewp:0419
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