A Theory of Fairness, Competition and Cooperation

Ernst Fehr and Klaus M. Schmidt

No 4, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

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.

Keywords: Fairness; Reciprocity; Inequity; Competition; Cooperation (search for similar items in EconPapers)
JEL-codes: C7 C91 C92 D64 H41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-ind
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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 (1999)
Working Paper: A Theory of Fairness, Competition and Cooperation (1998)
Chapter: A theory of fairness, competition, and cooperation
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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:004

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