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A Theory of Fairness, Competition, and Cooperation

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Type: Working Paper
Author: Fehr, Ernst; Schmidt, Klaus M.
Date: 1999
Agency: Institute for Empirical Research in Economics University of Zurich
Series: Working Paper No. 4
URI: https://hdl.handle.net/10535/6398
Sector: Theory
Subject(s): game theory
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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