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Fairness as a Constraint on Profit Seeking: Entitlements in the Market
Daniel Kahneman, Jack L. Knetsch and Richard Thaler
The American Economic Review
Vol. 76, No. 4 (Sep., 1986), pp. 728-741
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/1806070
Page Count: 14
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Community standards of fairness for the setting of prices and wages were elicited by telephone surveys. In customer or labor markets, it is acceptable for a firm to raise prices (or cut wages) when profits are threatened and to maintain prices when costs diminish. It is unfair to exploit shifts in demand by raising prices or cutting wages. Several market anomalies are explained by assuming that these standards of fairness influence the behavior of firms.
The American Economic Review © 1986 American Economic Association