ASFEE 6 in Paris

Authors > Brekke Kjell Arne

Relation specific investment in structured bargaining
Alice Ciccone  1@  , Leif Helland  2@  , Tom-Riel Heggedal  2@  , Kjell Arne Brekke  3, *@  
1 : University of Oslo  (UiO)
2 : Oslo Business School
3 : University of Oslo
* : Corresponding author

Full understanding of individual behavior in bargaining situations is essential given its applications in relevant economic and political related problems. The present work tests experimentally whether outside options and subjects' contributions to the production value influence the outcome of a structure bargaining game. The contribution of the present study is threefold. First, we replicate Binmore et al. (1989) findings and further show that this result holds also when the outside option is earned in the lab through an effort task. We then propose an experimental design to test whether relation specific investments matter for behavior.We find that relative contributions to the project value shape bargaining behavior in the lab. Finally, we introduce a Rubinstein (1982)-type model with loss aversion where the individual relative contribution to the pie serves as reference point. We find that the relative contributions of players do matter for behavior in the bargaining process. Specifically, we find that the bargaining outcome shifts significantly in the direction predicted by the loss aversion model; the outcome share is increasing in the contribution share of a player.

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