THE IMPACT OF ENTITLEMENTS AND EQUITY ON COOPERATIVE BARGAINING: AN EXPERIMENT

In some bargaining situations—for example, collaborative policy making and compulsory arbitration—a third party imposes a backstop position that differs from the status quo. Axiomatic models of cooperative bargaining presume that the status quo in such cases will have no effect on the negotiated outcome, especially if it is Pareto inferior to the backstop. Recent literatures on equity and entitlement, however, suggest that the status quo may establish a focal point that acts as an “anchor” in current negotiations, affecting any ultimate agreement. In a two‐party, two‐attribute experiment, in which subjects jointly select from up to 200 options, we find evidence (1) that the status quo matters, perhaps because of “entitlement effects” and (2) that parties prefer egalitarian outcomes to the Nash bargain. (JEL C92, D74, H44, Q58)