Scandinavian Working Papers in Economics

LiU Working Papers in Economics,
Linköping University, Division of Economics, Department of Management and Engineering

No 3: Fairness Versus Efficiency: How Procedural Fairness Concerns Affect Coordination

Verena Kurz , Andreas Orland and Kinga Posadzy ()
Additional contact information
Verena Kurz: University of Gothenburg, Department of Economics, Sweden
Andreas Orland: University of Potsdam, Department of Economics, Germany
Kinga Posadzy: Division of Economics, Department of Management and Engineering, Linköping University, Postal: Linköping University, SE-581 83 Linköping, Sweden

Abstract: What happens if a mechanism that aims at improving coordination treats some individuals unfairly? We investigate in a laboratory experiment whether procedural fairness concerns affect how well individuals are able to solve a coordination problem in a two-player Volunteer’s Dilemma. Subjects receive external action recommendations that can help them avoid miscoordination if followed by both players. One of the players receives a disadvantageous recommendation to volunteer while the other player receives a recommendation not to volunteer that gives her a payoff advantage if both players follow the recommendations they have received. We manipulate the fairness of the recommendation procedure by varying the probabilities of receiving a disadvantageous recommendation between players. We find that the recommendations improve overall efficiency regardless of their consequences for payoff division. However, there are behavioral asymmetries depending on the recommendation received by a player: advantageous recommendations are followed less frequently than disadvantageous recommendations in case of actions that guarantee a low payoff. While there is no difference in acceptance of different recommendation procedures, beliefs about others’ actions are more pessimistic in the treatment with a procedure inducing unequal expected payoffs. Our data shows that beliefs about others’ behavior are correlated with one’s own behavior, however this is the case only when following recommendations is a strategy that involves payoff-uncertainty.

Keywords: Coordination; Correlated equilibrium; Recommendations; Procedural fairness; Volunteer’s Dilemma; Experiment

JEL-codes: C72; C91; D63; D83

40 pages, March 1, 2016

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