Economics experiments dealing with choice decisions have indicated that the “homo-economicus” model of pure self-interested agents, is not sufficient to describe the outcome of such experiments (Camerer & Thaler, 1995). Different fairness models, introducing inequality aversion, Maximin preferences and efficiency concerns of the agents have to a reasonable extend been able to capture an altruistic component (Bolton & Ockenfels, 1998; Fehr &
Schmidt, 1999).
The majority of this fairness research has been done by means of dictator- or ultimatum games, where an agent must decide how much, if any of the money given to him gets shared with another (anonymous) agent (Engelmann & Strobel, 2004). Although these experiments successfully capture a basic level of fairness preference in the agents, in real life we seldom meet philanthropists handing out “free” money, and we seldom encounter in economics transactions with anonymous partners.
In supply chains, economic value gets added in every activity of the chain. For the success of the chain to sustain, each member must cooperate and thereto each member must be rewarded for his value contribution. A fair level of reward for each activity in the chain would represent the value added by that activity.
To bring dictator game experiments one step closer to the domain of everyday transactions we propose to let two agents perform a task in collaboration for which the second agent will be rewarded. He then decides how much of that reward is given to the other agent. We are
interested if information about the performance of the other agent, a proxy for the value added by his activity, will affect the amount paid to that agent.
Humans are social beings and we reciprocate social behavior.(Albert, Güth, Kirchler, &
Maciejovsky, 2007) We are interested how social interaction with the second agent will affect the amount paid to the first agent.
1.1 Research Motivation
To economists the world seems like a hard place. Homo-economicus is survival of the fittest. But the old marketing catchphrase “Customer is King” suggests, as does resource based theory of competitive advantage, that companies only stay in business in the long term when they deliver all that the customer asks for at the lowest cost (Grant, 1991). In everyday life everything comes at a price. How the price for a good is determined depends on the type of market. In monopolistic markets, price is determined by cost of goods sold plus a
predetermined profit margin(Varian, 2005).
In sufficiently competitive markets, the price is the result of supply and demand economics. If at the current market price, a majority of people prefer alternative goods or services, the price of the good or service will be driven downward until buyers can buy at a price below their private value and sellers can sell at a level above their marginal cost. (Vernon, 1962)
Even if the market for a consumer good is sufficiently competitive, this may not be the case for the market of half finished goods.
For those who pay attention to such news, the media frequently report about wrongful situations in the value chains of consumer goods. From sweat-shops in China, where low cost workers produce the expensive clothes for international brands, to child labor in India. From the price we pay for our vegetables, our milk and our coffee in the supermarket to the price farmers get for their crops. More recent in the news are reports of exaggerated executive salaries.
Such reports give consumers information about unfair sharing of profits, but seldom can we see consumers refuse such products. Individual consumers are powerless to change a market situation. But what would we do if we could dictate the relative share of the total surplus created by the value chain, of each member of the value chain?
1.2 Fairness
Transactions by definition must have at least two parties. In order to judge the fairness of a transaction, we must consider the needs of both parties in that transaction. This requires empathy, the ability to identify feelings, thoughts and attitudes of others.
For fairness here, we want to observe the total equation of the transaction, that is the ratio of efforts put forward in the transaction and the ratio of rewards paid to both parties.
If we are stakeholder of such transaction, we are by definition biased. We have a far superior ability to identify our own needs, thoughts and feelings than we can do for others.
We judge fairness from our own perspective. This causes fairness to be self-centered.
1.3 Research Question
Simple dictator games, as we will later describe, only deal with the distribution of allocations for which no measureable effort was put forward. We are interested if adding a task for both agents and adding information about the amount of work done by each agent, (a performance indicator) will affect the amount the second agent in the chain, the dictator, will share with his partner.
- Does the introduction of a task with performance indicators shift the distribution ratio in a direction to represent the performance level?
Knowing that humans reciprocate social behavior(Albert, Güth, Kirchler, & Maciejovsky, 2007), we further want to find out if the agents are sensitive for the way researchers approach them.
- In case of known relative performance, does social recognition of the dictator affect