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In economics the main efficiency criterion is that of Pareto-optimality. For problems of distributing a social endowment a central notion of fairness is no-envy (each agent should receive a bundle at least as good, according to her own preferences, as any of the other agent's bundle). For most economies there are multiple allocations satisfying these two properties. We provide a procedure, based on distributional implications of these two properties, which selects a single allocation which is Pareto-optimal and satisfies no-envy in two-agent exchange economies. There is no straightforward generalization of our procedure to more than two-agents.

We experimentally investigate the role of reciprocity in sustaining the emergence of implicit collusive agreements in hierarchical organizations. We show that when an agent hires, on behalf of the principal, one worker out of two candidates: i) low ability workers, being less entitled to be selected, are more likely to exert effort in a task that is exclusively beneficial to the agent; ii) as a consequence, agents distort the hiring process in favor of low ability workers and iii) sharing a small part of the organization's profits with the workers alleviates their effort distortion.

Traditionally, the virtue of democratic elections has been seen in their role as means of screening and sanctioning shirking public officials. This article proposes a novel rationale for elections and political campaigns considering that candidates incur psychological costs of lying, in particular from breaking campaign promises. These nonpecuniary costs imply that campaigns influence subsequent behavior, even in the absence of reputational or image concerns. Our lab experiments reveal that promises are more than cheap talk. They influence the behavior of both voters and their representatives. We observe that the electorate is better off when their leaders are elected democratically rather than being appointed exogenously-but only in the presence of electoral campaigns. In addition, we find that representatives are more likely to serve the public interest when their approval rates are high. Altogether, our results suggest that elections and campaigns confer important benefits beyond their screening and sanctioning functions. Adapted from the source document.