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The (Negligible) Benefit of Moving First: Efficiency and Equity in Principal-Agent Negotiations

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Abstract

Like the first-mover in an ultimatum game, the principal is a first-mover with foreknowledge of the agent’s “rational” best response function. The solution to the “principal’s problem” is to choose a contract that maximizes the principal’s expected profit given the agent’s marginal efficacy and marginal effort cost. However, this paper reports experiments that show that principals make large concessions toward an equal division outcome. As in ultimatum games, agents are at times willing to punish principals who are perceived as being overly acquisitive. Variations in agent effort cost and effectiveness that should (theoretically) produce qualitatively different game-theoretic equilibria have little impact on outcomes.

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Correspondence to Andrew B. Whitford.

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This research was supported by a grant from the Russell Sage Foundation. We thank Jim Holloway, Anthony Houchin, Alex Mislin, and LeAnne Ochs for their research assistance.

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Whitford, A.B., Bottom, W.P. & Miller, G.J. The (Negligible) Benefit of Moving First: Efficiency and Equity in Principal-Agent Negotiations. Group Decis Negot 22, 499–518 (2013). https://doi.org/10.1007/s10726-011-9280-4

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  • DOI: https://doi.org/10.1007/s10726-011-9280-4

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