Inequity Aversion May Increase Inequity

Inequity Aversion May Increase Inequity*

The Economic Journal 117 (519) , C192–C204 doi:10.1111/j.1468-0297.2007.02041.x

Maria Montero1
1University of Nottingham
* I am grateful to Guillaume Fréchette, Simon Gächter, John Kagel, Akira Okada, Alex Possajennikov, Gerald Pech, Jan Potters, Daniel Seidmann, three anonymous referees, and seminar/workshop audiences at the second CREED-CeDEx workshop, the University of the Basque Country, the 11th Coalition Theory Network Workshop and RES 2006 for helpful comments.
Abstract
Inequity aversion models have been used to explain equitable payoff divisions in bargaining games. I show that inequity aversion can actually increase the asymmetry of payoff division if unanimity is not required. This is because responders may be willing to accept a lower share rather than risk being left out. Inequity aversion may also affect comparative statics: the advantage of being the proposer can decrease as players become more impatient.