title: Distributional Preferences, Reciprocity-Like Behavior, and Efficiency in Bilateral Exchange.
abstract: Under what conditions do distributional 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 two key properties of the second-mover's preferences: indifference curves kinked around "fair" material-payoff distributions, and materials payoffs entering preferences as "normal goods." Either property can drive reciprocity-like behavior and generate a Pareto efficient outcome.
authors: Department of Economics, Cornell University, 480 Ursis Hall ( db468@cornell.edu ).
authors: Daniel J
authors: DJ
authors: Benjamin
keywords: altruism; distributional preferences; fairness; gift exchange; rotten kid theorem