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Can real-effort investments inhibit the convergence of experimental markets?

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  • Cason, Timothy N.
  • Gangadharan, Lata
  • Nikiforakis, Nikos

Abstract

Evidence 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 Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 29 (2011)
Issue (Month): 1 (January)
Pages: 97-103

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Handle: RePEc:eee:indorg:v:29:y:2011:i:1:p:97-103

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Web page: http://www.elsevier.com/locate/inca/505551

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Keywords: Property rights Real effort Posted-offer markets Random shock Surplus creation;

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Cited by:
  1. Großer, Jens & Reuben, Ernesto, 2009. "Redistributive Politics and Market Efficiency: An Experimental Study," IZA Discussion Papers 4549, Institute for the Study of Labor (IZA).

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