There is strong evidence that people exploit their bargaining power in competitivemarkets butnot inbilateral bargainingsituations. Thereisalsostrong 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 selesh types dominate equilibrium behavior.

/pdf/a-theory-of-fairness-competition-and-cooperation-20ykvpovfq.pdf

A theory of fairness, competition and cooperation

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.

/pdf/a-theory-of-fairness-competition-and-cooperation-445axsa22c.pdf

A Theory of Fairness, Competition and Cooperation

We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern The model is incomplete information but nevertheless posed entirely in terms of directly observable variables The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets (JEL C78, C90, D63, D64, H41)

/pdf/erc-a-theory-of-equity-reciprocity-and-competition-9lhkqwqjzg.pdf

ERC: A Theory of Equity, Reciprocity, and Competition

When people make donations to privately provided public goods, such as charity, there may be many factors influencing their decision other than altruism. Social pressure, guilt, sympathy, or simply a desire for a "warm glow" may all be important. This paper considers such impure altruism formally and develops a wide set of implications. In particular, this paper discusses the invariance proposition of public goods, solves for the sufficient conditions for neutrality to hold, examines the optimal tax treatment of charitable giving, and calibrates the model based on econometric studies in order to consider policy experiments. Impure altruism is shown to be more consistent with observed patterns of giving than the conventional pure altruism approach, and to have policy implications that may differ widely from those of the conventional models. Copyright 1990 by Royal Economic Society.

https://creationetfinancement.files.wordpress.com/2012/12/impure-altruism-and-donations-to-public-goods.pdf

Impure altruism and donations to public goods: a theory of warm-glow giving*

People like to help those who are helping them and to hurt those who are hurting them. Outcomes rejecting such motivations are called fairness equilibria. Outcomes are mutual-max when each person maximizes the other's material payoffs, and mutual-min when each person minimizes the other's payoffs. It is shown that every mutual-max or mutual-min Nash equilibrium is a fairness equilibrium. If payoffs are small, fairness equilibria are roughly the set of mutual-max and mutual-min outcomes; if payoffs are large, fairness equilibria are roughly the set of Nash equilibria. Several economic examples are considered and possible welfare implications of fairness are explored. Copyright 1993 by American Economic Association.

https://www.jstor.org/stable/pdfplus/2117561.pdf

Incorporating Fairness into Game Theory and Economics

Giving According to GARP

Evidence suggests that some pollutants follow an inverse-U-shaped pattern relative to countries' incomes. This relationship has been called the "environmental Kuznets curve." This paper lays out a simple and straight-forward static model of the microfoundations of the pollution-income relationship. We sho that the environmental Kuznets curve can be derived directly from the technological link between consumption of a desired good and abatement of its undesirable byproduct. The inverse-U shape does not depend on the dynamics of growth, political institutions, or even externalities, and can be consistent with a decentralized economy as well as a Pareto efficient policy.

/pdf/the-simple-analytics-of-the-environmental-kuznets-curve-i637gsoyz6.pdf

The Simple Analytics of the Environmental Kuznets Curve

We use structural estimates of time preferences to customize incentives for polio vaccinators in Lahore, Pakistan. We measure time preferences using intertemporal allocations of effort, and derive the mapping between these structural estimates and individually optimized incentives. We evaluate the effect of matching contract terms to discounting parameters in a subsequent experiment with the same vaccinators. This exercise provides a test of the specific point predictions given by structural estimates of discounting parameters. We demonstrate that tailoring contract terms to individual discounting moves allocation behavior significantly towards the intended objective.

/pdf/using-preference-estimates-to-customize-incentives-an-31whgm44zg.pdf

Using Preference Estimates to Customize Incentives: An Application to Polio Vaccination Drives in Pakistan

IRS as loan shark tax compliance with borrowing constraints

We examine demands for rewards and punishments in a simple proposer-responder game. The proposer first makes an offer to split a fixed-sized pie. According to the 2 x 2 design, the responder is or is not given a costly option of increasing or decreasing the proposer's payout. We find substantial demands for both punishments and rewards. While rewards alone have little influence on cooperation, punishments have some. When the two are combined the effect on cooperation is dramatic, suggesting that rewards and punishments are complements in producing cooperation. Providing new insights to what motivates these demands is the surprising finding that the demands for rewards depend on the availability of punishments.

/pdf/the-carrot-or-the-stick-rewards-punishments-and-cooperation-4gjd0jb6nt.pdf

James Andreoni

Papers

Giving According to GARP

The Simple Analytics of the Environmental Kuznets Curve

Using Preference Estimates to Customize Incentives: An Application to Polio Vaccination Drives in Pakistan

IRS as loan shark tax compliance with borrowing constraints

The Carrot or the Stick: Rewards, Punishments and Cooperation