Endogenous claims and collective production: an experimental study on the timing of profit-sharing negotiations and production

Research output: Contribution to journalArticle

Abstract

We explore the efficiency and distributive implications of a multilateral bargaining model with endogenous production of the surplus under two different timings: ex ante and ex post bargaining. Both timings are commonly observed in business partnerships and alliance formations. The theoretical predictions confirm an intuitive economic tenet: in ex post bargaining, effort is considered sunk and opportunistic bargaining behavior will dissuade players from producing. On the other hand, ex ante bargaining entails an allocation of ownership shares that induces at least certain members to invest in the common fund because their return is guaranteed. Experiments show opposite results: ex post bargaining yields almost fully efficient outcomes while the reverse timing entails near zero efficiency. The psychological theory of inequity is useful in reconciling these divergent results.

Original languageEnglish (US)
JournalExperimental Economics
DOIs
StateAccepted/In press - Jan 1 2018

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Profit sharing
Experimental study
Alliance formation
Economics
Bargaining model
Prediction
Psychological
Experiment
Share ownership
Surplus
Inequity
Multilateral bargaining

Keywords

  • Baron and Ferejohn (1989)
  • Inequity
  • Multilateral bargaining
  • Profit sharing
  • Public goods

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

Cite this

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abstract = "We explore the efficiency and distributive implications of a multilateral bargaining model with endogenous production of the surplus under two different timings: ex ante and ex post bargaining. Both timings are commonly observed in business partnerships and alliance formations. The theoretical predictions confirm an intuitive economic tenet: in ex post bargaining, effort is considered sunk and opportunistic bargaining behavior will dissuade players from producing. On the other hand, ex ante bargaining entails an allocation of ownership shares that induces at least certain members to invest in the common fund because their return is guaranteed. Experiments show opposite results: ex post bargaining yields almost fully efficient outcomes while the reverse timing entails near zero efficiency. The psychological theory of inequity is useful in reconciling these divergent results.",
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