Mui, Via-Lam: Fairness and Sharing in Innovation Games: A Laboratory Investigation
World Conference Econometric Society, 2000, Seattle

Timothy N. Cason, Purdue University
Via-Lam Mui, University of Notre Dame
Fairness and Sharing in Innovation Games: A Laboratory Investigation
Session: C-9-1  Monday 14 August 2000  by Mui, Via-Lam
This paper studies whether psychological considerations like envy and reciprocity can exacerbate distributional conflicts and prevent agents from adopting innovations that are potential Pareto improvements. In the innovation game without the sharing option, a participant A subject chooses whether to introduce an innovation that increases A's payoff, but reduces B's payoff, relative to the "status quo" payoff of each participant. If A innovates, B then decides whether to accept or reject the innovation. In all payoff treatments, (innovate, accept) is the unique subgame perfect equilibrium if both participants are only concerned with maximizing their pecuniary payoffs. We find that this outcome is observed less than one-half of the time overall when the sharing option is not available. A participants only innovate about 75 percent of the time, and B participants reject the innovation nearly 40 percent of the time. In the innovation game with the sharing option, A has the additional option to invest resources to share his gain from the innovation with B. We find that the availability of the sharing option increases the rate at which participant A subjects innovate in one of the two payoff treatments.

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