Earned entitlements and risky investments in bargaining: an experiment

Abstract In various organizational settings, a team member is given the authority to make an investment decision that influences the value of the jointly produced surplus. We experimentally investigate the effect of asymmetric status, investment decisions, and the outcome of these decisions on bargaining behavior and outcomes. Agents’ initial contributions to the surplus are determined by their relative performances in a real-effort task. Three treatments vary in how the final surplus value is determined. We observe that when low-contributors take a risk, they are punished (rewarded) for failure (success), whereas high-contributors receive a fixed share independent of the outcome. Analysis of bargaining process variables, subjects’ communication during bargaining, and third parties’ normative judgments provides further insights into the possible mechanism behind this observation.