Self-Serving Biases in Bargaining

There is strong evidence that in bargaining situations with asymmetric outside options people exhibit self-serving biases concerning their fairness judgements. Moreover, psychological literature suggests that this can be a driving force of bargaining impasse. This paper extends the notion of inequity aversion to incorporate self-serving biases due to asymmetric outside options and analyses whether this leads to bargaining breakdown. I distinguish between sophisticated and naive agents, that is, those agents who understand their bias and those who do not. I find that breakdown in ultimatum bargaining results from naiveté of the proposers

Ratification quotas in international agreements

This paper analyses the role of ratification quotas in multilateral agreements over emission reduction. The higher is the quota, the lower is the level of emissions in case the agreement comes into force, but the higher is also the risk of failure. In a setting with incomplete information, two country types and a binary contribution to the provision, I examine the differences between simultaneous and sequential ratification. When the benefits from emission of both types are smaller than the social costs, the outcome in the simultaneous case is essentially identical to the sequential case. The optimal quota is 100% and achieves the first best. With the high type's benefits exceeding the social costs, I find that the optimal quota is as small as possible, if ratification is simultaneous. In the sequential ratification case, I cannot determine the optimal quota. However, I find that the aggregate expected surplus decreases with respect to the simultaneous case

Self-Serving Biases in Bargaining

There is strong evidence that in bargaining situations with asymmetric outside options people exhibit self-serving biases concerning their fairness judgements. Moreover, psychological literature suggests that this can be a driving force of bargaining impasse. This paper extends the notion of inequity aversion to incorporate self-serving biases due to asymmetric outside options and analyses whether this leads to bargaining breakdown. I distinguish between sophisticated and naive agents, that is, those agents who understand their bias and those who do not. I find that breakdown in ultimatum bargaining results from naiveté of the proposers.fairness perceptions; self-serving bias; inequity aversion; ultimatum bargaining; outside options

Ratification quotas in international agreements

This paper analyses the role of ratification quotas in multilateral agreements over emission reduction. The higher is the quota, the lower is the level of emissions in case the agreement comes into force, but the higher is also the risk of failure. In a setting with incomplete information, two country types and a binary contribution to the provision, I examine the differences between simultaneous and sequential ratification. When the benefits from emission of both types are smaller than the social costs, the outcome in the simultaneous case is essentially identical to the sequential case. The optimal quota is 100% and achieves the first best. With the high type's benefits exceeding the social costs, I find that the optimal quota is as small as possible, if ratification is simultaneous. In the sequential ratification case, I cannot determine the optimal quota. However, I find that the aggregate expected surplus decreases with respect to the simultaneous case.public goods; international bargaining; ratfication; emission games

Lohnspreizung und Arbeitslosigkeit: theoretische Erklärungsansätze und Stand empirischer Forschung

The origin of increasing income inequality and strategies to influence this unwarranted development has stimulated major debates during the 1990s under economists, politicians and the general public in a number of OECD countries and the U.S. in particular. While this topic includes a broader agenda the focus of our paper is on possible sources of increasing wage inequality. The paper summarizes major theoretical arguments to explain these developments based on a simple comparative static model of the labor market with two inputs, skilled and unskilled labor. Current theories of labor markets identify demand and supply shifts and institutional factors affecting the income dispersion. Skill-biased technological change and trade liberalization are recognized as the major drivers of demand shifts. While these demand shifts tend to rise income inequality, the increasing supply of skilled workers influences income in the opposite direction. A third set of institutional factors influence wage dispersion like e.g. minimum wages or unionization as well as labor market legislation or other labor market regulations. These institutional factors tend to influence functional wage inequality compared to a pure competitive market solution. However institutional arrangements normally do not attempt to clear labor markets and therefore implicitly contribute to unemployment. The low level of unskilled unemployment as well as of unemployment in general in the U.S. during the 1990s compared to continental Europe and Germany in particular has lead to the statement of the trade-off hypothesis by Krugman that the high unemployment in Europe is just the other side of the medal where increasing wage inequality is subdued by institutional arrangements. This hypothesis is controversially discussed by other authors because of contradicting or inconclusive empirical evidence. Increasing wage inequality might bring down unemployment in Europe but will contribute on the other hand to phenomena like the working poor in the U.S. While this dilemma cannot be overcome following the trade-off hypothesis it is a more promising strategy in the long-run to focus economic policy responses to improve the supply side conditions for skill formation. By summing up empirical research results on this issue for the U.S. and Germany the authors attempt to assess to what extent these theoretical explanation are sufficient to give an appropriate account what is observed in reality.