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Endowment effect theory, public goods and welfare

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  • Bischoff, Ivo
  • Meckl, Jürgen

Abstract

According to endowment effect theory, the observed difference between the willingness to pay for a good and the willingness to accept retribution payments for giving up that good can be caused either by a disutility from parting or by an extra ownership utility. We analyze the welfare implications of these two alternatives with special emphasis on the case where they are good specific. Within a two-sector general-equilibrium model, we show that the ownership-utility effect may cause welfare losses: allocation inefficiencies are to be expected particularly with the provision of public goods.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

Volume (Year): 37 (2008)
Issue (Month): 5 (October)
Pages: 1768-1774

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Handle: RePEc:eee:soceco:v:37:y:2008:i:5:p:1768-1774

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Web page: http://www.elsevier.com/locate/inca/620175

Related research

Keywords: Endowment effect Public goods Economic welfare;

References

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  1. Frey, Bruno S & Eichenberger, Reiner, 1991. " Anomalies in Political Economy," Public Choice, Springer, vol. 68(1-3), pages 71-89, January.
  2. 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.
  3. Loewenstein, George & Adler, Daniel, 1995. "A Bias in the Prediction of Tastes," Economic Journal, Royal Economic Society, vol. 105(431), pages 929-37, July.
  4. Botond Koszegi & Matthew Rabin, 2005. "A Model of Reference-Dependent Preferences," Levine's Bibliography 784828000000000341, UCLA Department of Economics.
  5. Bateman, Ian J, et al, 1997. "A Test of the Theory of Reference-Dependent Preferences," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 479-505, May.
  6. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
  7. Kahneman, Daniel & Wakker, Peter P & Sarin, Rakesh, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 375-405, May.
  8. Borges, Bernhard F. J. & Knetsch, Jack L., 1998. "Tests of market outcomes with asymmetric valuations of gains and losses: Smaller gains, fewer trades, and less value," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 185-193, January.
  9. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
  10. H. Lorne Carmichael & W. Bentley Macleod, 2006. "Welfare Economics with Intransitive Revealed Preferences: A Theory of the Endowment Effect," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(2), pages 193-218, 05.
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Cited by:
  1. I. Lens & M. Pandelaere & L. Warlop, 2009. "The Role of Materialism in the Endowment Effect," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 09/578, Ghent University, Faculty of Economics and Business Administration.

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