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Discussion Paper Details

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Title: A Theory of Fairness, Competition and Cooperation

Author(s): Ernst Fehr and Klaus M. Schmidt

Publication Date: March 1998

Keyword(s): Bargaining, experimental economics, Public Goods, Reciprocity and utility theory

Programme Area(s): Industrial Organization

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 a fraction of the people exhibits inequality aversion the puzzles can be resolved.

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Bibliographic Reference

Fehr, E and Schmidt, K. 1998. 'A Theory of Fairness, Competition and Cooperation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1812