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Do Legal Standards Affect Ethical Concerns of Consumers?

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Author Info
Dirk Engelmann () (Royal Holloway, University of London)
Dorothea Kübler () (Technical University Berlin and IZA)

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Abstract

In order to address the impact of regulation on ethical concerns of consumers, we study the effect of a minimum wage. In our experimental market, consumers have monopsony power, firms engage in Bertrand competition, and workers are passive recipients of a wage payment. Two treatments are employed, one with no minimum wage in the first part but with a minimum wage in the second part, and one treatment with a minimum wage at the outset that is abolished in the second part. In both treatments, wages decrease over time in the first part even though some consumers show an interest in fair wages. If a minimum wage is in place, wages decline even faster. Introducing a minimum wage in a mature market raises average wages, while abolishing it lowers them. We discuss the implications of our results, such as the crowding out of ethical behavior through legal regulation.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3266.

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Length: 36 pages
Date of creation: Dec 2007
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Handle: RePEc:iza:izadps:dp3266

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Related research
Keywords: fairness crowding out consumer behavior minimum wage experimental economics

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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  1. Ernst Fehr & Urs Fischbacher, 2004. "Third-party punishment and social norms," Experimental 0409002, EconWPA. [Downloadable!]
    Other versions:
  2. Lawrence Katz & Alan Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
    Other versions:
  3. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series 1042, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
    Other versions:
  4. Elinor Ostrom, 2000. "Collective Action and the Evolution of Social Norms," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 137-158, Summer. [Downloadable!] (restricted)
  5. Dirk Engelmann & Urs Fischbacher, 2003. "Indirect Reciprocity and Strategic Reputation Building in an Experimental Helping Game," CERGE-EI Working Papers wp215, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
    Other versions:
  6. Dickens, Richard & Machin, Stephen & Manning, Alan, 1999. "The Effects of Minimum Wages on Employment: Theory and Evidence from Britain," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 1-22, January. [Downloadable!] (restricted)
    Other versions:
  7. repec:fth:prinin:298 is not listed on IDEAS
  8. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
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  12. Forsythe Robert & Horowitz Joel L. & Savin N. E. & Sefton Martin, 1994. "Fairness in Simple Bargaining Experiments," Games and Economic Behavior, Elsevier, vol. 6(3), pages 347-369, May. [Downloadable!] (restricted)
  13. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-93, September. [Downloadable!] (restricted)
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  14. Armin Falk & Michael Kosfeld, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
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  15. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June. [Downloadable!] (restricted)
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