Rent-seeking and fairness: The case of the Reykjavik Savings Bank

The paper is a case study of the planned takeover of the Reykjavik Savings Bank by a larger commercial bank. When the takeover deal was announced, the Icelandic Parliament quickly and unanimously passed a law which blocked the deal by creating a hold-up situation for the bank board: if it converts the bank to a corporation - as is necessary prior to takeover - an outside board will replace the present board. It is argued that the strong support for the law is somewhat of a puzzle from the perspective of theories of pressure groups, regulatory threat and privatization. While there is a variety of reasons and forces behind the outcome it is argued that fairness considerations were an important factor: the board in its rent-seeking efforts played what amounts to an ultimatum game against the general public and made what was perceived as an unfair proposal. The proposal was rejected by the public, as usually happens when unfair offers are made in ultimatum games.