Fairness and the Interdivisional Allocation of Cost and Benefit: An Experimental Study

Abstract

Much managerial and behavioural accounting research assumes that people are rational, self‐interested, expected‐utility maximisers. Often, this reduces to the central expectation that individuals are concerned only with their own material self‐interest and are unconcerned with the welfare of others. Here, we consider a preference for achieving fair outcomes in the context of an interdivisional cost and benefit allocation scenario. Consistent with prior research, we reject a simple wealth maximisation hypothesis and find that subjects actively attempt to achieve fair allocations. Interestingly, subjects were willing to adversely affect the outcome of one party to the transaction when they considered themselves to have been treated unfairly by a third party against whom they had no redress. Also, where subjects expected to have their wealth reduced by another party, who freely chose not to do so, these subjects appeared willing to give a lower share of a future windfall gain to them.

Citation

Fong Chua, W., Hooper, C. and Wai Yeong Mak, B. (2001), "Fairness and the Interdivisional Allocation of Cost and Benefit: An Experimental Study", Asian Review of Accounting, Vol. 9 No. 1, pp. 46-66. https://doi.org/10.1108/eb060735