Estimating a Parsimonious Model of Inequality Aversion in Stackelberg Duopoly Experiments

In the Stackelberg duopoly experiments in <link rid="b13">Huck "et al." (2001)</link>, nearly half of the followers' behaviours are inconsistent with conventional prediction. We use a test in which the conventional self-interested model is nested as a special case of an inequality aversion model. Maximum likelihood methods applied to the <link rid="b13">Huck "et al." (2001)</link> data set reject the self-interested model. We find that almost 40% of the players have disadvantageous inequality aversion that is statistically different from zero and economically significant, but advantageous inequality aversion is relatively unimportant. These estimates provide support for a more parsimonious model with no advantageous inequality aversion. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2010.