American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Distributional Preferences, Reciprocity-Like Behavior, and Efficiency in Bilateral Exchange
American Economic Journal: Microeconomics
vol. 7,
no. 1, February 2015
(pp. 70–98)
Abstract
Under what conditions do distributional preferences, such as altruism or a concern for fair outcomes, generate efficient trade? I analyze theoretically a simple bilateral exchange game: each player sequentially takes an action that reduces his own material payoff but increases the other player's. Each player's preferences may depend on both his/her own material payoff and the other player's. I identify two key properties of the second-mover's preferences: indifference curves kinked around "fair" material-payoff distributions, and materials payoffs entering preferences as "normal goods". Either property can drive reciprocity-like behavior and generate a Pareto efficient outcome. (JEL C78, D63, D64)Citation
Benjamin, Daniel J. 2015. "Distributional Preferences, Reciprocity-Like Behavior, and Efficiency in Bilateral Exchange." American Economic Journal: Microeconomics, 7 (1): 70–98. DOI: 10.1257/mic.20120109Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- D63 Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- D64 Altruism; Philanthropy
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