Date of this Version
American Economic Review
People exhibit peer-induced fairness concerns when they look to their peers as a reference to evaluate their endowments. We analyze two independent ultimatum games played sequentially by a leader and two followers. With peer-induced fairness, the second follower is averse to receiving less than the first follower. Using laboratory experimental data, we estimate that peer-induced fairness between followers is two times stronger than distributional fairness between leader and follower. Allowing for heterogeneity, we find that 50 percent of subjects are fairness-minded. We discuss how peer-induced fairness might limit price discrimination, account for low variability in CEO compensation, and explain pattern bargaining.
Ho, T., & Su, X. (2009). Peer-Induced Fairness in Games. American Economic Review, 99 (5), 2022-2049. http://dx.doi.org/10.1257/aer.99.5.2022
Date Posted: 27 November 2017
This document has been peer reviewed.