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Appendix E: On Fairness and Self-Serving Biases in the Privatization of Environmental Data, Edward E. Zajac, University of Arizona
Pages 193-212

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From page 193...
... INTRODUCTION The National Research Council (NRC) report Resolving Conflicts Arising from the Privatization of Environmental Data1 does a beautiful job of identifying the main stakeholders in the privatization process, analyzing their interests and their probable gains and losses from privatization, and describing how the creation and distribution of the results of research should be structured in order to achieve economic (allocative)
From page 194...
... Research on fairness ancl self-service was started at least four decades ago by psychologists with their work on equity theory.2 In the fast two clecacles, experimental economists have mounted a large fairness research effort, motivated by early experiments in which humans fai~ecl to show completely selfish, seif-interestecl behavior the behavior assumed by economic theory.3 At the same time, researchers from every branch of the social sciences have made ancl continue to make contributions to the theory. The main research tools have been surveys, case stuclies, laboratory studies using human subjects' ancl development of theory that is informed by the empirical findings ancl stimulated by them.
From page 195...
... Finally, I discuss how the results of fairness and self-service research might be applied to policy design. THE STRUCTURE OF FAIRNESS5 The Formal Principle of Distributive Justice; Material Principles If you and I happen to find $400 on the street, we would probably divide it equally into $200 for you and $200 for me.
From page 196...
... In their seminal article in the American Economic Review, based on extensive surveys, Kahneman, Knetsch, and Thaler formulated an entitlement theory for business transactions based on a reference transaction determined by history.7 Their data led them to conclude that transactors 7D. Kahneman, J.E.
From page 197...
... Seniority can be viewed as a combination of a status quo property right and desert, in that those who provide long and faithful service for an employer deserve more pay than those with short service. Likewise, status quo property rights are themselves sometimes a combination of historical entitlement and desert.
From page 198...
... Fairness norms are special cases of customs, and Schlicht's theory may provide the desired parsimonious explanation of fairness principles. His theory is, however, very new and its general acceptance is still in the offing.
From page 199...
... Fairness overdetermination may give potential gainers the weapons they need. They may resurrect dormant fairness principles, using those that allow them to claim that they are being treated unfairly.
From page 200...
... playing field." Contract-Breaking Behavior Perceived unfair treatment is in fact a great energizer, and the rectification of unfairness strongly motivates the creation of new policy. Often the feeling of unfair treatment is the feeling that a contract, implicit or explicit, i5W.
From page 201...
... In it Festinger laid out a general theory of the rejection of reality or, for want of a better term, of "denial." Somewhat oversimplified, his theory goes like this: Our minds hold simplified models of reality, models that we are loath to abandon. We do not welcome evidence that contradicts these models and thus leads to "cognitive dissonance." We try to reduce this dissonance in various ways, perhaps by rejecting the contradictory evidence or perhaps by ignoring it while we find more evidence to support the models in our minds.
From page 202...
... Dartmouth students, on the other hand, recorded an approximately equal number of penalties by both teams. While the truth probably lies somewhere in between, the researchers concluded that it was as if the two groups of students "saw a different game.''18 The interested reader can find a recent survey of this literature and the general literature on cognitive dissonance in Konow (20001.~9 IMPLICATIONS Privatization Means a Problem of Institutional Design The privatization of environmental data will create new institutions.
From page 203...
... Newspapers periodically report litigants spending thousands on litigation to settle a disagreement over a matter in which a few dollars are at stake. Political Fairness Games and Two Case Studies Fairness fights are also not confined to litigants in court battles.
From page 204...
... Thus it, too, could be viewed as a quasi-public agency, playing a role in telecommunications analogous to that played by government research entities in other areas. AT&T's management fiercely resisted attempts by MCI, and later by other common carriers, to invade its turf.
From page 205...
... The charges provided fuel for political fairness games before the FCC and Congress, as well as for some legal fairness games played out before the courts (MCI won most of the games)
From page 206...
... In addition to the common carriers, specialized groups, mostly police and fire departments and taxicab companies, had their own mobile telephone service. Prior to the introduction of cellular telephony, a land mobile customer connected by radio phone to an operator who patched him into the tele24Ironically, the Telecommunications Act of 1996 and its interpretation and implementation by the FCC reintroduced the specific consideration of costs into the regulation of telecommunications carriers.
From page 207...
... The resulting political fairness game played out mostly before the FCC but with some trips to the courts. Approval of the deployment of cellular mobile telephony occurred only in 1982, 14 years after the FCC first contemplated the cellar design!
From page 208...
... Its basic object was to achieve "fairness" rather than "control." It forms the basis of current federal administrative law.28 Needless to say, the APA's "fair" procedures are abundantly overdetermined in the Elster sense. It is hardly surprising that they triggered lengthy political fairness games in both the deregulation of long distance and the implementation of cellular mobile.
From page 209...
... The FCC could have adopted spectrum auctions just as well in 1968, when it first contemplated cellular mobile telephony, as it did almost 30 years later. Applying the Results of Fairness and Self-Service Research The results of research outlined in earlier sections say that we can expect the following in the privatization of environmental data: stakeholders will expect that the Formal Principle will be applied and that material principles of justice will be invoked to give meanings to its vague terms.
From page 210...
... for forestalling them. For example, in economic experiments regarding "fair" income distribution, there was a large variance in what college student subjects considered a fair minimum family income.
From page 211...
... We in fact saw this with the FCC's decision to auction off the spectrum allocated to digital cellular service.


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