Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

12-2009

Publication Source

American Economic Review

Volume

99

Issue

5

Start Page

2022

Last Page

2049

DOI

10.1257/aer.99.5.2022

Abstract

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.

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Date Posted: 27 November 2017

This document has been peer reviewed.