Performance information, production uncertainty, and subjective entitlements in bargaining

Abstract

We experimentally explore the effect of performance information and production uncertainties on (i) subjective entitlements derived from the production process and (ii) bargaining over the jointly produced surplus. We hypothesize that performance information and details of the production process affect entitlements, which in turn influence bargaining behavior. We find that, without performance information, subjective entitlements are mostly mutually consistent, and bargaining mainly ends with an equal split. In stark contrast, negotiators derive strong, mutually inconsistent, subjective entitlements when there is performance information. These subjective entitlements affect opening proposals, concessions, and bargaining duration and lead to asymmetric agreements. Moreover, given performance information, endogenous variations in entitlements influence bargaining, suggesting an independent role of subjective entitlements. Production uncertainties influence bargaining, especially when performance information is present, but do not substantially mitigate the effect of entitlements. Theoretical bargaining models allowing for reference points or fairness principles can partly account for the empirical results. Yet, important aspects are left unexplained and our results suggest ways for extending these models. © 2015 INFORMS.