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Fairness considerations in joint venture formation

Published online by Cambridge University Press:  14 March 2025

Tanjim Hossain ,
Elizabeth Lyons Open the ORCID record for Elizabeth Lyons [Opens in a new window]  and
Aloysius Siow
Tanjim Hossain*
Affiliation:
Institute for Management and Innovation and Rotman School of Management, University of Toronto, 105 St George St, Toronto, ON M5S 3E6, Canada
Elizabeth Lyons*
Affiliation:
School of Global Policy and Strategy, University of California, 9500 Gilman Drive, MC 0519 La Jolla, San Diego, CA 92093-0519, USA
Aloysius Siow*
Affiliation:
Department of Economics, University of Toronto, 150 St. George St, Toronto, ON M5S 3G7, Canada
*
[email protected]
[email protected]
[email protected]
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Abstract

Using a series of laboratory experiments in the context of bilateral bargaining over whether and how to engage in a joint venture, this paper shows that fairness concerns result in failures to undertake profitable joint production opportunities. We find that framing an opportunity as an employment relationship rather than as a partnership significantly reduces these inefficiencies and increases subjects’ welfare. Consistent with the theoretical model developed in the paper, text analysis and a follow-up experiment demonstrate that the lower likelihood of an efficient outcome in the partnership frame is driven primarily by a concern for fairness generated by the perceived social relationship associated with partnerships, and not by differences in the economic structure, cognition, subject motivation, or changes in relative bargaining power.

Keywords

Firm formationFairness concernsCooperative bargainingOrganizational structure

JEL classification

C92: Laboratory, Group Behavior D91: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ L14: Transactional Relationships • Contracts and Reputation • Networks D83: Search • Learning • Information and Knowledge • Communication • Belief • Unawareness
Type
Original Paper
Information
Experimental Economics , Volume 23 , Issue 3 , September 2020 , pp. 632 - 667
Copyright
Copyright © 2019 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10683-019-09626-x) contains supplementary material, which is available to authorized users.

The authors are grateful to Quinn Lewis for excellent research assistance, and to Mitch Hoffman and Charles Sprenger, and participants in seminars at the Harvard Business School, University of Toronto, Ryerson University, and the National University of Singapore for valuable feedback. We gratefully acknowledge funding support from UC San Diego Academic Senate and SSHRC Insight Grant No. 502502.

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