We study equitable allocation of indivisible goods and money among agents with other-regarding preferences. First, we argue that Foley's (1967) equity test, i.e., the requirement that no agent prefers the allocation obtained by swapping her consumption with another agent, is suitable for our environment. Then we establish the existence of allocations passing this test for a general domain of preferences that accommodates prominent other-regarding preferences. Our results are relevant for equitable allocation among inequity-averse agents and in a domain with linear externalities that we introduce. Finally, we present conditions guaranteeing that these allocations are efficient.Thanks to Paulo Barelli, Luis Corchon, Vikram Manjunath, William Thomson, a co-editor, and an anonymous referee for very useful comments. This paper is based on the second chapter of my Ph.D. dissertation at the University of Rochester. All errors are my own.1 Kolm (1971) refers to an earlier formulation of this test by Tinbergen (1946).

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How should a group of roommates allocate the rooms and contributions to rent in the house they lease? Economists have provided partial answers to this question in a literature that spans the last 40 years. Unfortunately, these results were developed in a non-linear fashion, which obscures them to the non-specialist. Recently, computer scientists have developed an interest in this problem, advancing from an algorithmic complexity perspective. With this new interest gaining traction, there is an evident need for a coherent development of the results in economics literature. This article does so. In particular, we build connections among results that were seemingly unrelated and considerably simplify their development, fill in non-trivial gaps, and identify open questions. Our focus is on incentives issues, the area in which we believe economists have more to contribute in this discussion.

In experimental partnership dissolution problems with complete information, the divide-and-choose mechanism is significantly superior to the winner's-bid auction. The performance of divide-and-choose is mainly affected by reciprocity issues and not by bounded rationality. The performance of the winner's-bid auction is significantly affected by bounded rationality. Contrary to theoretical predictions divide-and-choose exhibits no first-mover bias.

We introduce empirical equilibrium, a refinement of Nash equilibrium. In contrast to previous refinements in the literature, empirical equilibrium is based solely on observables and does not determine as implausible all weakly dominated behavior. We show that a distribution of play is an empirical equilibrium if and only if it is the limit of regular Quantal Response Equilibria associated with quantal responses that are utility maximizing in the limit. This result provides a direct link between the practice of experimental economics and our refinement.