Performance Information, Production Uncertainty, and Subjective Entitlements in Bargaining

We experimentally explore the effects and interactions of three variables considered important when bargaining over a jointly produced surplus: performance information, production uncertainties when translating performance into output, and subjective entitlements derived from the production process. 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 impact bargaining but do not substantially mitigate the effect of entitlements. Theoretical bargaining models allowing for reference points can partly account for the empirical results. Yet, important aspects are left unexplained and our results suggest ways for extending these models. JEL Classification: C790, C920, D010, D290, D630, D890, M590