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Distributional Preferences, Reciprocity-Like Behavior, and Efficiency in Bilateral Exchange.

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.

SUBMITTER: Benjamin DJ

PROVIDER: S-EPMC4316380 | biostudies-literature | 2015

REPOSITORIES: biostudies-literature

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Distributional Preferences, Reciprocity-Like Behavior, and Efficiency in Bilateral Exchange.

Benjamin Daniel J DJ

American economic journal. Microeconomics 20150101 1

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" ...[more]

PMID: 25664144

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