Fairness, property rights, and the market for media [Elektronische Ressource] : essays in behavioral economics and industrial organization / vorgelegt von Susanne Kremhelmer

Kremhelmer, Charles Susanne

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2004
• Nombre de lectures: 14
• Langue: English

Extrait

FAIRNESS, PROPERTY RIGHTS, AND THE
MARKET FOR MEDIA:
ESSAYS IN BEHAVIORAL ECONOMICS AND
INDUSTRIAL ORGANIZATION


Inaugural-Dissertation
zur Erlangung des Grades Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universität München

2004
vorgelegt von
SUSANNE KREMHELMER


Referent: Prof. Dr. Klaus M. Schmidt
Korreferent: Professor Ray Rees
Promotionsabschlussberatung: 21. Juli 2004

TO HANS


A CKNOWLEDGEMENTS
I want to thank my supervisor and co-author of Chapter 1, Klaus M.
Schmidt, for his onging support and patience during my PhD studies.
Furthermore, I want to thank my collegues Björn Bartling, Florian
Englmaier, Brigitte Gebhard, Georg Gebhardt, Florian Herold,
Alexander Klein and Simone Kohnz. I owe special thanks to Hans
Zenger, the co-author of Chapter 3, who greatly supported and
encouraged me.


CONTENTS

Preface ............................................................................................................................. 5

1 Fairness and the Optimal Allocation of Ownership Rights .......................... 13
1.1 Introduction................................................................................................13
1.2 A Simple Problem of the Allocation of Ownership Rights ....................... 17
1.3 Theoretical Predictions..............................................................................20
1.3.1 Common Knowledge of Self-Interested Preferences ...................... 20
1.3.2 Common Knowledge of Fair and/or Reciprocal Preferences.......... 21
1.3.3 Incomplete Information...................................................................24
1.4 Experimental Results.................................................................................33
1.4.1 Experimental Procedures.................................................................33
1.4.2 Joint Ownership Design .................................................................. 35
1.4.3 A-Ownership Design ....................................................................... 41
1.4.4 Control Treatment for Joint Ownership Design .............................. 45
1.5 Conclusions................................................................................................ 48
1.6 Experimental Instructions .......................................................................... 50
1.7 Appendix.................................................................................................... 57

CONTENTS 4
2 Distributional Fairness, Efficiency, and the Effect of a Strategic
Environment......................................................................................................79
2.1 Introduction................................................................................................79
2.2 Experimental Set-Up..................................................................................83
2.3 Treatment Effects.......................................................................................89
2.3.1 Effect of Monetary Payoffs ............................................................. 90
2.3.2 Effect of a Strategic Environment ................................................... 94
2.3.3 Discussion of Treatment Effects.................................................... 100
2.4 Consistency within the Distribution Games ............................................ 103
2.5 Summary and Conclusion........................................................................ 110
2.6 Appendix..................................................................................................112
3 Advertising and the Media............................................................................. 127
3.1 Introduction..............................................................................................127
3.2 The Model................................................................................................132
3.3 Monopoly Media......................................................................................136
3.3.1 First Best........................................................................................3.3.2 Second Best...................................................................................137
3.4 Competitive Media145
3.4.1 First Best146 3.4.2 Second Best147
3.5 Comparative Statics.................................................................................150
3.6 Discussion................................................................................................153
3.7 Appendix..................................................................................................158
References.................................................................................................................... 169

PREFACE


This doctoral dissertation was written at the University of Munich at the chair of
Professor Dr. Klaus M. Schmidt from 1999 to 2004. It consists of three chapters that
can be read independently.
The first two chapters of this thesis are concerned with the theory of fairness.
One of the most fundamental paradigms of economic theory until the 1990’s has been
the so called self-interest hypothesis, according to which economic agents only care for
their own material well-being and disregard the utility of others. This is not to say that
all economists denied the existence of other-regarding preferences like reciprocity, envy
1or altruism. Rather, it was common practice not to incorporate social preferences into
economic models despite the fact that researchers knew from their personal experiences
that not everybody is always completely selfish. This mainly had four reasons.
Firstly, the self-interest hypothesis is of remarkable mathematical simplicity as it
generates utility functions that only have one argument, namely the vector of goods that
an agent consumes. This allowed building tractable models in a unified framework.
Secondly, the results that these models generated were largely consistent with
the observations that one could make in real world markets, which were at the center of
interest for general equilibrium theorists. In related disciplines – such as public choice
theory – the self-interest hypothesis also yielded predictions that were consistent with

1 As one would have guessed, already Adam Smith (1759) discusses other-regarding preferences.
5PREFACE 6
reality. In short, the simple assumptions that theorists made were useful for the purpose
at hand.
Thirdly, imposing the restriction that economic agents have to be rational and
self-interested constituted a code of conduct for economic researchers that everybody
had to subdue to. By explicitly ruling out bounded rationality or ''strange'' preferences,
researchers could not go the easy way and simply postulate an appropriate utility
function in order to generate phenomena that were observed in reality. This clearly had
the advantage of establishing some kind of discipline.
Finally, many of the situations where people suspected that other-regarding
preferences might play a role were regarding interaction among small numbers of
agents. In these situations strategic considerations clearly play an important role. But
prior to the advent of game theory, such situations could not even be appropriately
modeled within the self-interest framework – let alone in a more complicated
environment with interdependent utility functions.
The first three arguments for restricting attention to self-interested preferences
still have their merits. However, since the 1980’s a pervasive amount of empirical and
experimental evidence has been collected which shows that social preferences play an
important role in many situations that go far beyond the private sphere. It was shown for
example that firms explicitly adapt their wage policies in a way that is deemed fair by
their workers (see for instance Blinder and Choi, 1990, and Bewley, 1999).
Furthermore, a large number of bilateral bargaining experiments made clear that
people’s desire for a fair treatment sometimes made them incur substantial monetary
losses in order to punish unfair (or reward fair) behavior by others (see Roth, 1995, and
Camerer and Thaler, 1995, for surveys). This literature made clear that contrary to prior
presumptions, other-regarding preferences were often very important in a variety of
2economic fields.

2 It is not our aim to give an even rudimentary overview over this burgeoning literature at this point. See
Fehr and Schmidt (2003) for an extensive survey.
PREFACE 7
As a consequence, models came up that tried to capture other-regarding motives
in a general way. These papers can be largely divided into two categories. One strand of
the literature models fairness as reciprocal (i.e. intention-based) behavior (Rabin, 1993,
Dufwenberg and Kirchsteiger, 2004). The other strand of the literature builds on models
with distributive (i.e. outcome-based) fairness (Fehr and Schmidt, 1999, and Bolton and
Ockenfels, 2000). Falk and Fischb