Inequity Aversion May Increase Inequity

Abstract

Inequity aversion models have been used to explain equitable payoff divisions in bargaining games. I show that inequity aversion can actually increase the asymmetry of payoff division if unanimity is not required. This is because responders may be willing to accept a lower share rather than risk being left out. Inequity aversion may also affect comparative statics: the advantage of being the proposer can decrease as players become more impatient.