Publication Date

8-31-2013

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.

Comments

Suggested Citation
Benjamin, D. J. (2015). Distributional preferences, reciprocity-like behavior, and efficiency in bilateral exchange. American Economic Journal: Microeconomics, 7(1), 70-98.

An earlier version of this paper can be found here: http://digitalcommons.ilr.cornell.edu/ics/1/

Required Publisher Statement
© American Economic Association. Reprinted with permission. All rights reserved.

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