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Estimating a Parsimonious Model of Inequality Aversion in Stackelberg Duopoly Experiments

Authors


  • The authors thank Vai-Lam Mui, Hans Normann, participants of the Econometric Society North American Summer Meeting (Pittsburgh) and the Econometric Society European Meeting (Milan), an anonymous referee and two editors for helpful comments, Steffen Huck for providing the data, Philip Ng for research assistance and Robert Canwell for editorial help. Financial support from the Hong Kong Institute of Economics and Business Strategy at the University of Hong Kong is gratefully acknowledged.

Abstract

In the Stackelberg duopoly experiments in Huck et al. (2001), nearly half of the followers’ behaviours are inconsistent with conventional prediction. We use a test in which the conventional self-interested model is nested as a special case of an inequality aversion model. Maximum likelihood methods applied to the Huck et al. (2001) data set reject the self-interested model. We find that almost 40% of the players have disadvantageous inequality aversion that is statistically different from zero and economically significant, but advantageous inequality aversion is relatively unimportant. These estimates provide support for a more parsimonious model with no advantageous inequality aversion.

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