Social Preferences and the Efficiency of Bilateral Exchange

53 Pages Posted: 6 Mar 2009 Last revised: 27 Jun 2010

See all articles by Daniel J. Benjamin

Daniel J. Benjamin

USC, Center for Economic and Social Research (CESR); Anderson School of Management; National Bureau of Economic Research (NBER); Human Genetics Department, David Geffen School of Medicine

Date Written: June 15, 2010

Abstract

Under what conditions do social preferences, such as altruism or a concern for fair outcomes, generate efficient trade? I analyze theoretically a simple bilateral exchange game: Each player sequentially takes an action that reduces his own material payoff but increases the other player’s. Each player’s preferences may depend on both his/her own material payoff and the other player’s. I identify necessary conditions and sufficient conditions on the players’ preferences for the outcome of their interaction to be Pareto efficient. The results have implications for interpreting the rotten kid theorem, gift exchange in the laboratory, and gift exchange in the field.

Keywords: social preferences, fairness, altruism, gift exchange, rotten kid theorem

JEL Classification: D63, J33, J41, M52, D64

Suggested Citation

Benjamin, Daniel J. and Benjamin, Daniel J., Social Preferences and the Efficiency of Bilateral Exchange (June 15, 2010). Available at SSRN: https://ssrn.com/abstract=1354902 or http://dx.doi.org/10.2139/ssrn.1354902

Daniel J. Benjamin (Contact Author)

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