Can real-effort investments inhibit the convergence of experimental markets?
AbstractEvidence shows that real-effort investments can affect bilateral bargaining outcomes. This paper investigates whether similar investments can inhibit equilibrium convergence of experimental markets. In one treatment, sellers' relative effort affects the allocation of production costs, but a random productivity shock ensures that the allocation is not necessarily equitable. In another treatment, sellers' effort increases the buyers' valuation of a good. We find that effort investments have a short-lived impact on trading behavior when sellers' effort benefits buyers, but no effect when effort determines cost allocation. Efficiency rates are high and do not differ across treatments.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 29 (2011)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/inca/505551
Property rights Real effort Posted-offer markets Random shock Surplus creation;
Other versions of this item:
- Timothy Cason & Lata Gangadharan & Nikos Nikiforakis, 2009. "Can Real?Effort Investments Inhibit the Convergence of Experimental Markets?," Department of Economics - Working Papers Series 1089, The University of Melbourne.
- Timothy N. Cason & Lata Gangadharan & Nikos Nikiforakis, 2010. "Can Real-Effort Investments Inhibit the Convergence of Experimental Markets?," Purdue University Economics Working Papers 1232, Purdue University, Department of Economics.
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- D4 - Microeconomics - - Market Structure and Pricing
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
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