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Fairness and Coordination: The Role of Fairness Principles in Coordination Failure and Success

Fairness and Coordination: The Role of Fairness Principles in Coordination Failure and Success
Date:May 16, 2013
Author:

Mark Bernard (Maastricht University), Ernesto Reuben (Columbia University), Arno Riedl (Maastricht University)

Speaker:Professor Arno Riedl (University of Maastricht)

Abstract

We study the role of fairness principles as focal points in coordination problems with homogeneous and heterogeneous agents. To this end we elicit normatively fair ways of how the coordination game should be played. We find that in homogeneous groups people implicitly agree on a unique fair way of playing the game while in heterogeneous groups well-defined multiple but conflicting fairness principles prevail. In the subsequent repeated coordination game homogeneous groups most of the time successfully coordinate on the equilibrium consistent with the unique fairness principle of equality. In heterogeneous groups coordination often fails or is inefficient. Interestingly, heterogeneous groups are equally likely as homogeneous groups in achieving coordination but are less likely to stay coordinated. In both types of groups only equilibria consistent with a fairness principle are stable. Individual level analysis reveals that individual fairness principles and expectations about others' fairness principles are, on the one hand, important for staying coordinated but, on the other hand, also responsible for leaving even efficient coordination equilibria that are not in concordance with one of the fairness principles. Hence, fairness principles can lead to success but may also induce failure in coordination problems.