Title:Co-evolution of Inequity Averse Agents
Experimental and theoretical analyses of inequity aversion are based on the assumption that a fraction of the population exhibits inequity-averse preferences. Yet this assumption remains untested. We characterize the conditions for inequity aversion to evolve within a principal-agent environment. The co-evolutionary foundations of inequity aversion are grounded in the implications of inequity-aversion for contract design; the ability of inequity-averse 'mutants' to successfully invade a population of opportunistic agents; and the existence of a stable cross-sectional distribution of agents once the frequency of inequity-averse agents crosses a critical value, characterized in terms of the degree of inequity aversion.