Equitable Allocations in Experimental Bargaining Games: Inequality A version versus Efficiency

Dorothea K. Herreiner and Clemens Puppe

No 29/2004, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: In this paper, we report on a series of free-form bargaining experiments in which two players have to distribute four indivisible goods among themselves. In one treatment the monetary payoffs associated with each bundle of goods are common knowledge; in a second treatment only the ordinal ranking of the bundles is given. We find that in both cases, the following qualitative rule yields a good explanation of individual behavior: First determine the most equal distribution, then find a Pareto improvement provided that this does not create “too much” inequality. In the ordinal treatment, individuals apparently use the ranks in the respective preference orderings over bundles as a substitute for the unknown monetary value. Interestingly, we find much less Pareto-damaging behavior due to inequality aversion in the ordinal treatment.

Date: 2004
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