Inequality

Philosophy

Ecology

Law and economics

Bargaining power

Biology

Punishment (psychology)

Exploit

Microeconomics

Social psychology

Computer security

Economics

Inequity aversion

Computer science

Simple (philosophy)

Neoclassical economics

Competition (biology)

Psychology

Mathematics

Political science

Public economics

Epistemology

Mathematical analysis

Mathematical economics

Positive economics

Equity (law)

The Quarterly Journal of Economics

There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained, although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selfish types dominate equilibrium behavior.

A Theory of Fairness, Competition, and Cooperation