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The initial endowment effect in experimental auctions revisited: further evidence

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Author Info
Lanier Nalley
Darren Hudson
Gregory Parkhurst

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Abstract

This analysis employs a uniform 4th price sealed-bid auction to test the impact of endowment heterogeneity on participant bids. A mechanism to legitimize the wealth of participants consistent with prior research on endowments is employed. Second, unlike some previous literature, a mechanism to endogenously induce endowment heterogeneity is employed. Results from a Tobit analysis of participant bids indicate that endowment heterogeneity has no significant impact on bidding behaviour. Therefore, it is concluded that when wealth is legitimized within an experiment, bidding behaviour is more likely rational leading to more robust experimental results.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Economics Letters.

Volume (Year): 12 (2005)
Issue (Month): 1 (January)
Pages: 59-63
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Handle: RePEc:taf:apeclt:v:12:y:2005:i:1:p:59-63

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  1. Keeler, James P & James, William L & Abdel-Ghany, Mohamed, 1985. "The Relative Size of Windfall Income and the Permanent Income Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 209-15, June.
  2. Cherry, Todd L. & Kroll, Stephan & Shogren, Jason F., 2005. "The impact of endowment heterogeneity and origin on public good contributions: evidence from the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 57(3), pages 357-365, July. [Downloadable!] (restricted)
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  3. Todd L. Cherry & Peter Frykblom & Jason F. Shogren, 2002. "Hardnose the Dictator," American Economic Review, American Economic Association, vol. 92(4), pages 1218-1221, September. [Downloadable!] (restricted)
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  4. Franciosi, Robert & Kujal, Praveen & Michelitsch, Roland & Smith, Vernon & Deng, Gang, 1996. "Experimental tests of the endowment effect," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 213-226, August. [Downloadable!] (restricted)
  5. Sheryl Ball & Catherine Eckel & Philip J. Grossman & William Zame, 2001. "Status In Markets," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 161-188, February. [Downloadable!] (restricted)
  6. Praveen Kujal & Vernon L. Smith, 2003. "The Endowment Effect," Economics Working Papers we036226, Universidad Carlos III, Departamento de Economía. [Downloadable!]
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