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THE IMPACT OF ENTITLEMENTS AND EQUITY ON COOPERATIVE BARGAINING: AN EXPERIMENT

Authors

  • CHRISTOPHER BRUCE,

    1. Bruce: Department of Economics, University of Calgary, Calgary, AB T2N 1N4, Canada. Phone 403-220-4093, Fax 403-282-5262, E-mail cjbruce@ucalgary.ca
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  • JEREMY CLARK

    1. Clark: Department of Economics and Finance, University of Canterbury, Christchurch 8140, New Zealand. Phone 011-643-364-2308, Fax 011-643-364-2635, E-mail jeremy.clark@canterbury.ac.nz
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    • Funding for this research was provided by the Donner Canadian Foundation and the College of Business and Economics of the University of Canterbury. We would like to thank two anonymous referees for very helpful comments, as well as Michael McKee, C. Bram Cadsby, Kyle Hyndman, Andrea Menclova, and Charles Noussair.


Abstract

In some bargaining situations—for example, collaborative policy making and compulsory arbitration—a third party imposes a backstop position that differs from the status quo. Axiomatic models of cooperative bargaining presume that the status quo in such cases will have no effect on the negotiated outcome, especially if it is Pareto inferior to the backstop. Recent literatures on equity and entitlement, however, suggest that the status quo may establish a focal point that acts as an “anchor” in current negotiations, affecting any ultimate agreement. In a two-party, two-attribute experiment, in which subjects jointly select from up to 200 options, we find evidence (1) that the status quo matters, perhaps because of “entitlement effects” and (2) that parties prefer egalitarian outcomes to the Nash bargain. (JEL C92, D74, H44, Q58)

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