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The Effect of Initial Endowments in Experimental Auctions

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Author Info
Jay R. Corrigan
Matthew C. Rousu

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Abstract

We report the results of an experiment designed to test whether initial endowments affect value estimates elicited from experimental auctions. Comparing bids for one unit of a good, two units of a good, and a second unit of a good when endowed with the first unit, we find that willingness to pay for the second unit of a good is, on average, as much as 75% higher when endowed with the first unit. We go on to advance two theories that could potentially reconcile our results with neoclassical consumer theory. Copyright 2006 American Agricultural Economics Association.

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Article provided by American Agricultural Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 88 (2006)
Issue (Month): 2 (05)
Pages: 448-457
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Handle: RePEc:bla:ajagec:v:88:y:2006:i:2:p:448-457

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  1. Maria L. Loureiro & Wendy J. Umberger & Susan Hine, 2003. "Testing the initial endowment effect in experimental auctions," Applied Economics Letters, Taylor and Francis Journals, vol. 10(5), pages 271-275, April. [Downloadable!] (restricted)
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  5. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1994. "An Empirical Analysis of Cigarette Addiction," NBER Working Papers 3322, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Huffman, Wallace E. & Shogren, Jason F. & Rousu, Matthew & Tegene, Abebayehu, 2003. "Consumer Willingness to Pay for Genetically Modified Food Labels in a Market with Diverse Information: Evidence from Experimental Auctions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(03), December. [Downloadable!]
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  7. Todd L. Cherry & Peter Frykblom & John List & Jason Shogren & Melonie Williams, 2002. "Laboratory Testbeds and Nonmarket Valuation: The Case of Bidding Behavior in a Second Price Auction with an Outside Option," Working Papers 02-13, Department of Economics, Appalachian State University.
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  8. Shogren, Jason F. & Seung Y. Shin & Dermot J. Hayes & James B. Kliebenstein, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," American Economic Review, American Economic Association, vol. 84(1), pages 255-70, March.
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  10. Buhr, Brian L. & Hayes, Dermot J. & Shogren, Jason F. & Kliebenstein, James B., 1993. "Valuing Ambiguity: The Case Of Genetically Engineered Growth Enhancers," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(02), December. [Downloadable!]
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  12. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December. [Downloadable!] (restricted)
  13. Fox, John & Hayes, Dermot & Shogren, Jay, 2002. "Consumer Preferences for Food Irradiation: How Favorable and Unfavorable Descriptions Affect Preferences for Irradiated Pork in Experimental Auctions," Staff General Research Papers 5207, Iowa State University, Department of Economics.
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  14. Jay R. Corrigan, 2005. "Is the Experimental Auction a Dynamic Market?," Working Papers 0501, Kenyon College, Department of Economics. [Downloadable!]
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  15. Matthew Rousu, 2005. "European Consumers' Willingness to Pay for U.S. Beef in Experimental Auction Markets: Comment," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 87(1), pages 255-257, 02. [Downloadable!] (restricted)
  16. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November. [Downloadable!] (restricted)
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  18. Jayson L. Lusk & Ty Feldkamp & Ted C. Schroeder, 2004. "Experimental Auction Procedure: Impact on Valuation of Quality Differentiated Goods," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 86(2), pages 389-405, 05. [Downloadable!] (restricted)
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  19. Glenn W. Harrison & Ronald M. Harstad & E. Elisabet Rutstr–m, 2004. "Experimental Methods and Elicitation of Values," Experimental Economics, Springer, vol. 7(2), pages 123-140, 06. [Downloadable!]
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  20. Fox, John A. & Buhr, Brian L. & Shogren, Jason F. & Kliebenstein, James B. & Hayes, Dermot J., 1995. "Comparison of Preferences for Pork Sandwiches Produced from Animals With and Without Somatotropin Administration (A)," Staff General Research Papers 852, Iowa State University, Department of Economics.
  21. Frode Alfnes & Kyrre Rickertsen, 2005. "European Consumers' Willingness to Pay for U.S. Beef in Experimental Auction Markets: Reply," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 87(1), pages 258-260, 02. [Downloadable!] (restricted)
  22. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December. [Downloadable!] (restricted)
  23. Munro, Alistair & Sugden, Robert, 2003. "On the theory of reference-dependent preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 50(4), pages 407-428, April. [Downloadable!] (restricted)
  24. Hayes, Dermot J. & Shogren, Jason F. & Shin, Seung Youll & Kliebenstein, James B., 1995. "Valuing Food Safety in Experimental Auction Markets," Staff General Research Papers 835, Iowa State University, Department of Economics.
  25. Matthew Rousu & Wallace E. Huffman & Jason F. Shogren & Abebayehu Tegene, 2004. "Are United States Consumers Tolerant of Genetically Modified Foods?," Review of Agricultural Economics, American Agricultural Economics Association, vol. 26(1), pages 19-31, 02. [Downloadable!] (restricted)
  26. Morrison, Gwendolyn C., 1998. "Understanding the disparity between WTP and WTA: endowment effect, substitutability, or imprecise preferences?," Economics Letters, Elsevier, vol. 59(2), pages 189-194, May. [Downloadable!] (restricted)
  27. Kolstad, Charles D. & Guzman, Rolando M., 1999. "Information and the Divergence between Willingness to Accept and Willingness to Pay," Journal of Environmental Economics and Management, Elsevier, vol. 38(1), pages 66-80, July. [Downloadable!] (restricted)
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  28. Shogren, Jason F & List, John A & Hayes, Dermot J, 2000. " Preference Learning in Consecutive Experimental Auctions," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 82(4), pages 1016-21, November. [Downloadable!] (restricted)
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  29. Lusk, Jayson L. & Daniel, M. Scott & Mark, Darrell R. & Lusk, Christine L., 2001. "Alternative Calibration And Auction Institutions For Predicting Consumer Willingess To Pay For Nongenetically Modified Corn Chips," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(01), July. [Downloadable!]
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  30. Shogren, Jason F. & Margolis, Michael & Koo, Cannon & List, John A., 2001. "A random nth-price auction," Journal of Economic Behavior & Organization, Elsevier, vol. 46(4), pages 409-421, December. [Downloadable!] (restricted)
  31. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August. [Downloadable!] (restricted)
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  32. Jeremy Clark, 2002. "House Money Effects in Public Good Experiments," Experimental Economics, Springer, vol. 5(3), pages 223-231, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rousu, Matthew C. & Beach, Robert H. & Corrigan, Jay R., 2005. "Demand Curve Shifts in Multi-Unit Auctions: Evidence from a Laboratory Experiment," 2005 Annual meeting, July 24-27, Providence, RI 19513, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Jay R. Corrigan, 2005. "Is the Experimental Auction a Dynamic Market?," Working Papers 0501, Kenyon College, Department of Economics. [Downloadable!]
    Other versions:
  3. Colson, Greg & Rousu, Matthew & Huffman, Wallace E., 2008. "Consumers' Willingness to Pay for New Genetically Modified Food Products: Evidence from Experimental Auctions of Intragenic and Transgenic Foods," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6407, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  4. Jay R. Corrigan & Matthew C. Rousu, 2006. "Posted Prices and Bid Affiliation: Evidence from Experimental Auctions," Working Papers 0602, Kenyon College, Department of Economics. [Downloadable!]
    Other versions:
  5. Matthew C. Rousu & Jay R. Corrigan, 2008. "Estimating the Value Consumers Derive from Product Labeling," Working Papers 0802, Kenyon College, Department of Economics. [Downloadable!]
  6. Colson, Gregory & Huffman, Wallace E. & Rousu, Matthew, 2009. "Demand Curve Effects in Experimental Auctions: The Effect of Quantity Already Owned," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49551, Agricultural and Applied Economics Association. [Downloadable!]
  7. Rousu, Matthew C. & Monchuk, Daniel C. & Shogren, Jason F. & Kosa, Katherine M., 2005. "Consumer Willingness to Pay for "Second-Generation" Genetically Engineered Products and the Role of Marketing Information," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 37(03), December. [Downloadable!]
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