Transparency Versus Backroom Deals in Bargaining∗

We design an experiment to study the effects of transparency on bargaining processes. We show that whether transparency arrises 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.