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Fairness and the Optimal Allocation of Ownership Rights*


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     Alexander Klein provided excellent research assistance for the experiments discussed in this article. We thank anonymous referees and Leonardo Felli (the editor) for very useful comments and suggestions. We also thank Oliver Hart, Bentley MacLeod and seminar participants at Bocconi University, Boston University, the University of Virginia, the NBER's workshop on organisation theory, the CESifo area conference on microeconomics and the conference on Economics and Psychology in Toulouse for their comments. Part of this research was conducted while the third author visited Yale University and he thanks the Economics Department for its great hospitality. Financial support by Deutsche Forschungsgemeinschaft through SFB-TR 15 and grant SCHM-1196/4-1 and by the EU-Marie Curie RTN ENABLE (MRTM-CT-2003-505223) is gratefully acknowledged. Ernst Fehr also gratefully acknowledges support from the Swiss National Science Foundation (project number 1214-05100.97) and the Network on the Evolution of Preferences and Social Norms of the MacArthur Foundation and the EU-TMR Research Network ENDEAR (FMRX-CTP98-0238).


We report on several experiments on the optimal allocation of ownership rights. The experiments confirm the property rights approach by showing that the ownership structure affects relationship-specific investments and that subjects attain the most efficient ownership allocation despite starting from different initial conditions. However, in contrast to the property rights approach, the most efficient ownership structure is joint ownership. These results cannot be explained by the self-interest model nor by models that assume that all people behave fairly but they are largely consistent with approaches that focus on the interaction between selfish and fair players.