Fairness and the Optimal Allocation of Ownership Rights

Fehr, Ernst; Kremhelmer, Susanne and Schmidt, Klaus M. (July 2005): Fairness and the Optimal Allocation of Ownership Rights. Discussion Papers in Economics 2005-21

Abstract

We report on several experiments on the optimal allocation of ownership rights. The experiments confirm the property rights approach by showing that the ownership structure affects relationship-specific investments and that subjects attain the most efficient ownership allocation despite starting from different initial conditions. However, in contrast to the property rights approach, the most efficient ownership structure is joint ownership. These results are neither consistent with the self-interest model nor with models that assume that all people behave fairly, but they can be explained by the theory of inequity aversion that focuses on the interaction between selfish and fair players.

• Item Type: Paper
• Keywords: Ownership Rights; Double Moral Hazard; Fairness; Reciprocity; Incomplete Contracts
• Faculties: Economics; Economics > Munich Discussion Papers in Economics; Economics > Munich Discussion Papers in Economics > Micro-Economics; Economics > Munich Discussion Papers in Economics > Industrial Organization; Economics > Munich Discussion Papers in Economics > Behavioral Economics; Economics > Munich Discussion Papers in Economics > Institutional Economics; Economics > Chairs > Seminar for Economic Theory
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: C7, C9, J3
• Language: English