What happens if a mechanism that aims at improving coordination between individuals treats selected 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.
Fairness versus Efficiency: How Procedural Fairness Concerns Affect Coordination
Working Paper by Verena Kurz, Andreas Orland, and Kinga Posadzy — Jan. 20, 2016Download
From Resources Radio: Understanding Climate Models, with Massimo Tavoni of EIEE
Resources Radio: Energy Inefficiency, with RFF's Joshua Blonz
Host Daniel Raimi and Joshua Blonz, a postdoctoral fellow at RFF, talk about his recent research on an energy efficiency program in California, the...
The Welfare Costs of Misaligned Incentives: Energy Inefficiency and the Principal-Agent Problem
I measure the welfare costs of the principal-agent problem in the context of an energy efficiency appliance upgrade program. I find that the principal-agent problem turns an otherwise welfare-increasing program into a welfare-reducing program.