Social science and neuroscience: how can they inform each other?

Recent research indicates that an interdisciplinary approach bridging the gap between social science and neuroscience is a key factor for obtaining a better understanding of individual decision making and social phenomena. This paper focuses on reciprocal fairness as a paradigmatic interdisciplinary case study. We discuss the recent behavioral evidence on reciprocity, identifying several unanswered questions. We then review the relevant neuroeconomic evidence about reciprocal preferences, mind reading and empathy.     

On the self-interested use of equity in international climate negotiations

We discuss self-interested uses of equity arguments in international climate negotiations. Using unique data from a world-wide survey of agents involved in international climate policy, we show that the perceived support of different equity rules by regions may be explained by the ranking of their economic costs. Despite being self-interested, equity arguments may be perceived as being used for different reasons, for example, out of fairness considerations or in order to facilitate negotiations. Consistent with experimental and behavioral studies on fairness perceptions, we find that individuals are more likely to state reasons with positive attributes if they evaluate their own region or regions that support the individual's personally preferred equity rule. Negotiators perceive the use of equity by regions as less influenced by pressure from interest groups.     

Responsibility for what? Fairness and individual responsibility

What should individuals be held responsible for? This is a fundamental question in much of the contemporary debate on distributive justice. Different fairness ideals, such as strict egalitarianism, and different versions of equal opportunity ethics and libertarianism give different answers to this question. In order to study the prevalence of these fairness ideals in society, we present the results from a dictator game where the distribution phase is preceded by a production phase. Each participant's contribution is a result of working time, productivity and price. We estimate what factors the participants hold each other responsible for and the weight they attach to fairness. In addition, we discuss how fairness preferences relate to business education and labour market experiences by comparing the estimates for business students at different stages of their education, and by comparing the estimates for final-year business students with the estimates for former business students with some years of work experience.     

On fair allocations

This paper examines the effects of fairness on economic behavior and allocations, where fairness is defined as the absence of envy among consumers. We use the benefit function to investigate the welfare cost of fairness. We show how fairness generates a form of altruism, captured by a “fair expenditure” function that depends on the distribution of welfare. We define the most efficient fair allocations and explore the implications of fairness for economic behavior, pricing and redistribution policies.     

The Biodiversity Bargaining Problem

We employ cooperative bargaining theory and Nash’s ‘rational threats’ idea to cast light on the biodiversity bargaining problem. The problem of global environmental negotiations is argued to be of the nature of a bargaining problem, in which bargainers must agree on the distribution of cooperative surplus in order to move to the bargaining frontier. We discuss the importance of both efficiency (bargaining frontier) and fairness (recognition of characteristics of bargainers) in the choice of the appropriate contract. We show that the incremental cost contract, used to resolve the biodiversity bargaining problem, is of the form of an extreme point contract that fails to recognise the contributions of the South to the production of cooperative surplus. A rational response to such a contract is the use of threats of biodiversity destruction. Contracts must evince both efficiency and fairness in order to represent lasting solutions.     

Fair imposition

We introduce a new mechanism-design problem called fair imposition. In this setting a center wishes to fairly allocate tasks among a set of agents whose cost structures are known only to them, and thus will not reveal their true costs without appropriate incentives. The center, with the power to impose arbitrary tasks and payments on the agents, has the additional goal that his net payment to these agents is never positive (or, that it is tightly bounded if a loss is unavoidable). We consider two different notions of fairness that the center may wish to achieve. The central notion, which we call k-fairness, is in the spirit of max-min fairness. We present both positive results (in the form of concrete mechanisms) and negative results (in the form of impossibility theorems) concerning these criteria. We also briefly discuss an alternative, more traditional interpretation of our setting and results, in the context of auctions.     

International support of climate change policies in developing countries: Strategic, moral and fairness aspects

International transfers in climate policy channeled from the industrialized to the developing world either support the mitigation of climate change or the adaptation to global warming. From a purely allocative point of view, transfers supporting mitigation tend to be Pareto-improving whereas this is not very likely in the case of adaptation support. We illustrate this by regarding transfer schemes currently applied under the UN Framework Convention on Climate Change (UNFCCC) and the Kyoto framework.However, if we enrich the analysis by integrating distributional aspects, we find that international adaptation funding may help both the developing and developed world. Interestingly this is not due to altruistic incentives, but due to follow-up effects on international negotiations on climate change mitigation. We argue that the lack of fairness perceived by developing countries in the international climate policy arena can be reduced by the support of adaptation in these countries. As we show - taking into account different fairness concepts - this might raise the prospects of success in international negotiations on climate change. Yet, we find that the influence of transfers may induce different fairness effects on climate change mitigation negotiations to run counter.We discuss whether current transfer schemes under the UNFCCC and the Kyoto framework adequately serve the distributive and allocative objectives pursued in international climate policy.     

Elimination contests with collusive team players

We consider a standard two-stage elimination (Tullock) contest where multiple (team) players can perfectly and publicly collude with each other throughout. We analyze and compare equilibrium outcomes under various seedings where the collusive players meet or are separated in the group stage. We identify the impact of collusion on the contest organizer and non-collusive players, as well as the organizer's optimal seeding. We find that collusion, while always undermining fairness of the competition, can hurt or benefit the organizer, depending on the discriminatory powers of the two stages. We also discuss issues such as sequential group-stage competitions, comparison between the elimination contest and the corresponding one-shot contest, secret collusion, and large discriminatory powers.     

Populism,Fairness and Competition: Should We Care and What Could We Do?

The rise of populism in a number of countries is one of the most visible signs of the weakening of enthusiasm for trade liberalization and market competition. Market competition is increasingly denounced as leading to unfair results by those who lose jobs, and in some cases risk losing their employment prospects because of the pressure of competition, or those who see their wages stagnate or be reduced. Their perception is that pro‐competitive policies benefit capitalists and a small coterie of highly skilled workers to the detriment of the low‐skilled majority. In a number of countries there have been calls by politicians to reconsider the trade liberalization policy which was actively pursued in recent decades and to change the standard applied by competition law enforcers from a strict consumer welfare standard to a consideration of the trade‐off between efficiency and fairness. The competition community has, to a large extent, strongly resisted such possibilities, arguing that protectionist policies had failed in the past and that the concept of fairness is at best vague, lack economic foundation, and could lead to a weakening of incentives to achieve efficient static and dynamic performances. The article examines three issues related to this debate. First, we examine the theoretical and practical reasons for which some categories of workers lose in the competitive process. Second, we discuss the relationship between inequality and fairness and the contribution of behavioural economics to the exploration of what people consider to be fair or unfair in vertical relationships (i.e. between employees and employers or between consumers and suppliers). Third, we discuss alternative ways in which competition authorities could reconcile fairness and efficiency in their advocacy or enforcement activities.     

Fair welfare maximization

We consider the general problem of finding fair constrained resource allocations. As a criterion for fairness we propose an inequality index, termed “fairness ratio,” the maximization of which produces Lorenz-undominated, Pareto-optimal allocations. The fairness ratio does not depend on the choice of any particular social welfare function, and hence it can be used for an a priori evaluation of any given feasible resource allocation. The fairness ratio for an allocation provides a bound on the discrepancy between this allocation and any other feasible allocation with respect to a large class of social welfare functions. We provide a simple representation of the fairness ratio as well as a general method that can be used to directly determine optimal fair allocations. For general convex environments, we provide a fundamental lower bound for the optimal fairness ratio and show that as the population size increases, the optimal fairness ratio decreases at most logarithmically in what we call the “inhomogeneity” of the problem. Our method yields a unique and “balanced” fair optimum for an important class of problems with linear budget constraints.     

Procedural fairness in lotteries assigning initial roles in a dynamic setting

We extend the study of procedural fairness in three new directions. Firstly, we focus on lotteries determining the initial roles in a two-person game. One of the roles carries a potential advantage over the other. All the experimental literature has thus far focused on lotteries determining the final payoffs of a game. Secondly, we modify procedural fairness in a dynamic—i.e. over several repetitions of a game—as well as in a static—i.e. within a single game-sense. Thirdly, we analyse whether assigning individuals a minimal chance of achieving an advantaged position is enough to make them willing to accept substantially more inequality. We find that procedural fairness matters under all of these accounts. Individuals clearly respond to the degree of fairness in assigning initial roles, appraise contexts that are dynamically fair more positively than contexts that are not, and are generally more willing to accept unequal outcomes when they are granted a minimal opportunity to acquire the advantaged position. Unexpectedly, granting full equality of opportunity does not lead to the highest efficiency.     

Testing subgame perfection apart from fairness in ultimatum games

We present an experiment designed to separate the two commonplace explanations for behavior in ultimatum games—subjects’ concern for fairness versus the failure of subgame perfection as an equilibrium refinement. We employ a tournament structure of the bargaining interaction to eliminate the potential for fairness to influence behavior. Comparing the results of the tournament game with two control treatments affords us a clean test of subgame perfection as well as a measure fairness-induced play. We find after 10 iterations of play that about half of all non-subgame-perfect demands are due to fairness, and the rest to imperfect learning. However, as suggested by models of learning, we also confirm that the ultimatum game presents an especially difficult environment for learning subgame perfection. Electronic Supplementary Material Supplementary material is available in the online version of this article at . JEL Classification C91, D64, J52     

Fairness Considerations in Labor Union Wage Setting – A Theoretical Analysis

We consider a theoretical model in which unions not only take the outside option into account, but also care about the performance of the firm and base their wage‐setting decisions on a firm internal reference, called the fairness reference. Two references, which measure the earnings situation of the firm, are considered – productivity and profits per worker. Wage and employment outcomes as well as the degree of wage rigidity depend on the size of the fairness reference relative to the outside option. A high fairness reference leads to wage pressure and real wage rigidity, whereas a low fairness reference leads to wage moderation and real wage flexibility. An increase in the weight on the fairness reference amplifies these deviations from the standard model.     

效率和公平关系的再认识

十七大报告对于收入分配问题有了新的提法“初次分配和再分配都要处理好效率和公平的关系,再分配更加注重公平”,回顾中国处理公平与效率关系问题的历程,使我们了解到：在社会主义市场经济条件下,效率问题由市场机制来解决,而公平问题应当由政府来解决,不仅要注重效率的问题,而且要注重公平问题,更加注重公平是我们对效率和公平关系认识的深化和完善。     

Why do (some) ordinary Americans support tax cuts for the rich? Evidence from a randomised survey experiment

Why do (some) ordinary citizens support tax cuts for the rich? We test four prominent explanations – unenlightened self-interest, fairness considerations, prospect of upward mobility, and trickle-down beliefs – using a randomised, online information provision experiment, embedded in a representative survey of around 3000 US Americans. The results show that preferences for taxing the rich are fundamentally affected by information that shifts citizens’ core fairness beliefs, as well as information on the past trajectory of top tax rates. In contrast, we find no evidence in support of the unenlightened self-interest or prospect of upward mobility explanations. Overall, our results align with theories of tax policy preferences that emphasise the importance of fairness perceptions and reference points.     

On the fairness of random procedures

We consider procedures that use randomness to make a decision that involves several individuals. We asked subjects to compare the fairness of six pairs of seemingly equivalent procedures. We propose a classification of subjects into two categories: those who are “emotional” in the sense that they exhibit a systematic ranking of procedures on the basis of intuitive notions of fairness, and those who are “consequentialists” in the sense that they systematically view each pair of procedures as being equally fair. According to this classification, about 30% of the subjects are emotional while 31% are consequentialists.     

Secrecy and fairness in plea bargaining with multiple defendants

I consider a model of plea bargaining with multiple codefendants. I mainly compare the equilibrium outcomes under joint negotiations whereby both defendants can observe both plea offers and under separate (secret) negotiations whereby they can observe only their own respective offer. Contrary to the widespread perceptions, the prosecutor is made worse off under secret negotiations or at best as well off as under joint negotiations. I also discuss the implication of equilibrium offers on fairness.      

Individual sense of fairness: an experimental study

Many prior studies have identified that subjects in experiments demonstrate preferences for fair allocations. We present an experimental study designed to test whether a similar concern for fairness manifests itself when the decision maker is choosing among differing probabilistic allocation mechanisms that will all generate an ex post unfair allocation by assigning an indivisible prize to one individual. This investigation is inspired by Karni and Safra (Econometrica, 70, 263–284, 2002 ) in which a structure for preferences for fairness in such an environment was developed. Here we use this model to design experiments that allow us to test for the presence of concern for fairness in individual choice behavior and examine some factors that may affect the intensity of the concern for fairness.

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Electronic Supplementary Material  The online version of this article () contains supplementary material, which is available to authorized users.      

Help the Low Skilled or Let the Hardworking Thrive? A Study of Fairness in Optimal Income Taxation

In a model where agents have unequal wages and heterogeneous preferences, we study the optimal redistribution via an income tax, when the social objective is based on a combination of efficiency and fairness principles, and when incentive issues are taken into account. We show how some fairness principles entail specific features for the optimal taxes, such as progressivity or tax exemption for incomes below the minimum wage.