Justice and efficiency in economic relations: explaining collaboration and conflict in the firm and choice in ultimatum games

Abstract

Individual preferences are sensitivic to particular economic interections. Complex psychological phenomena affec the meaning and ordering of their objects according to different institucional patterns and strategical arrangements. We provide an agency model that explains preference endogenity in reference to higher order normative priciples and individual moral judgment. We use this model to explain the organization of labor regimes in the firms and the formation of preferences and choice in ultimatum games. In the firm, workers judgc the fairness of the distribution of the gains from cooperation and consequently adopt working attitudes that determine the equilibrium level of information assymetry, transaction costs and innefficiency. We explore from this perspective the formation and distribution of gains from cooperation, and their relation with the adoption of different labor regimes. A regime in which the parties maintain fair working relations clears up potential market and information failures and may generate a collaborative equilibrium enhacing maximum global efficiency. Other distributive strategies, however, uncover such failures and reduce efficiency. “Efficiency wage” regimes, while having the potential for increasing fairness and efficiency, may evolve into relations generating transfers of value in favor of the firm considered unfair by the workers; and produce resource misallocation and an equilibrium where strongly dissonant workers constitute a “moral hazard” for the firm. We analyze the conditions that determine the firm’s choice.