Final answer:
The fairness of the bonuses refers to distributive justice. Trust between firms and the potential outcomes of their interactions can be analyzed using concepts from game theory and the prisoner's dilemma. Fairness in markets influences decisions, showing even financial gains are often balanced with equity considerations.
Step-by-step explanation:
Evaluating the fairness of the bonuses given to Mary, Franco, and Christa refers to the concept of distributive justice within business and economic contexts. Distributive justice considers the allocation of resources in a society, or in this case, a company, and whether the outcomes of these allocations are fair. This concept becomes especially relevant in analyzing how markets reach equilibrium and the effectiveness and fairness of these markets. In economic terms, an equitable market is one that manages to allocate resources in a way that is seen as fair by the participants, while also allowing for efficient functioning without excess surplus or shortage.
Exploring the trust between firms involves game theory, particularly the prisoner's dilemma, which helps predict likely outcomes when firms must decide whether to cooperate or act in their own self-interest independent of the other. In the context given, if Firm A believes Firm B will 'cheat' by increasing output, Firm A is incentivized to also increase output to avoid making a smaller profit. This scenario often leads to both firms choosing to increase output, even though mutual cooperation could potentially lead to a better outcome for both.
Political scientists and economists suggest that agents in markets often seek outcomes that balance personal gain with fairness. Experimental data supports the idea that offers in negotiations, such as splitting profits or bonuses, need to somewhat approach a fair split to be accepted, showcasing that fairness is a significant driver even in financial decisions. This is further illustrated in the case of the two organic corn growers, Mary and Raj. If Raj is certain that Mary will cooperate by lowering output, his best choice would be to also cooperate and lower output in order to maximize profit. If Mary suspects Raj will cheat, she should also decide to work independently to avoid earning nothing. This dilemma highlights the prisoner's dilemma in economics, where despite the mutual benefits of cooperation, individual incentives can lead to non-cooperation. The preferred choice, if they could ensure cooperation, is to work together and both lower output to increase earnings for both parties.