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Social Preferences and Competition

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  • KLAUS M. SCHMIDT

Abstract

There is a general presumption that social preferences can be ignored if markets are competitive. Market experiments (Smith 1962) and recent theoretical results (Dufwenberg et al. 2008) suggest that competition forces people to behave as if they were purely self-interested. We qualify this view. Social preferences are irrelevant if and only if two conditions are met: separability of preferences and completeness of contracts. These conditions are often plausible, but they fail to hold when uncertainty is important (financial markets) or when incomplete contracts are traded (labor markets). Social preferences can explain many of the anomalies frequently observed on these markets.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 43 (2011)
Issue (Month): (08)
Pages: 207-231

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Handle: RePEc:mcb:jmoncb:v:43:y:2011:i::p:207-231

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Wolfgang Höchtl & Rupert Sausgruber & Jean-Robert Tyran, 2011. "Inequality Aversion and Voting on Redistribution," Discussion Papers 11-18, University of Copenhagen. Department of Economics.
  2. Fabian Paetzel & Rupert Sausgruber & Stefan Traub, 2014. "Social Preferences and Voting on Reform: An Experimental Study," Department of Economics Working Papers wuwp172, Vienna University of Economics, Department of Economics.

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