Transparency Versus Back-Room Deals in Bargaining

We design an experiment to study the effects of transparency on bargaining processes. We show that whether transparency arises endogenously depends on the degree of competition between subjects. In a competitive setting there is no transparency: subjects use private communication channels to compete for favors from those in power and establish backroom deals. In the absence of competition the bargaining process is transparent: subjects communicate publicly and outcomes are more egalitarian. We further show that in a competitive setting, imposing transparency by requiring all communication to be public reduces the observed competition between subjects and leads to more egalitarian outcomes.