Self-Interest and Equity Concerns: A Behavioural Allocation Rule for Operational Problems

Abstract

In many economic situations, individuals with different bargaining power must agree on how to divide a given resource. For instance, in the dictator game the proposer has all the bargaining power. In spite of it, the majority of controlled experiments show that she shares an important amount of the resource with the receiver. In the present paper I consider how behavioural and psychological internal conflicting aspects, such as self-interest and equity concerns, determine the split of the resource. The individual allocation proposals are aggregated in terms of altruism and value for the resource under dispute to obtain a single allocation. The resulting allocation rule is generalized to the n-individuals case through efficiency and consistency. Finally, I show that it satisfies a set of desirable properties. The obtained results are of practical interest for a number of situations, such as river sharing problems, sequential allocation and rationing problems.