Inequity aversion in organizational hierarchies

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Working Paper

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Organizations generally keep allocations to employees secret to manage fairness concerns. We propose that this secrecy can be counter-productive because it can result in inflated expectations even when there is no knowledge of allocations to peers. . Based on the ultimatum game, we developed a paired ultimatum game in which a player and peer responder engage with the same offerer simultaneously, and tested our predictions in four experiments. In Experiment 1, responders reported higher minimum acceptable offers when they merely knew that a peer responder was engaging with the same offerer. In Experiment 2, we found this effect to be attributable to implicit comparison with respect to the peer responder, and, in Experiment 3, the effect was weakened when offers to peers were known and transparent to the focal responder. Finally, in Experiment 4, making the offers to peer responders transparent increased the acceptance rates of low and equitable offers to the focal responders. These results suggest certain conditions under which transparency may be better than secrecy for organizations looking to manage fairness concerns.



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