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Voting rules and endogenous trading institutions: An experimental study

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    Abstract

    This paper reports on recurring laboratory elections in which buyers and sellers choose institutional rules to govern a subsequent trading round. The bid auction (buyers propose prices), offer auction (sellers suggest prices) and double auction (both trader types initiate price quotes) make up the electoral candidates. Both plurality rule and approval voting are used as vote-counting schemes. The former allows each trader to vote for, at most, one auction, whereas approval voting permits voters to either abstain or to vote for one, two or all three institutional alternatives. The main result is threefold. First, plurality rule induces a Duverger effect in the sense that only the bid and offer auctions emerge as viable auctions. Approval voting instead leads to close three-way races with each of the three auctions winning approximately one third of the elections. Second, buyers (sellers) in the plurality-rule sessions concordantly vote for the bid (offer) auction. Approval-voting behavior is comparatively more heterogeneous. Third, bid-auction prices are significantly lower than double-auction prices, which again are significantly below offer-auction prices.

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    Bibliographic Info

    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 328.

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    Date of creation: Aug 2002
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    Handle: RePEc:ssb:dispap:328

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    Keywords: Plurality rule; approval voting; sequential auctions; experimental economics.;

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    1. Brams, Steven J & Nagel, Jack H, 1991. " Approval Voting in Practice," Public Choice, Springer, vol. 71(1-2), pages 1-17, August.
    2. Roger B. Myerson, 1994. "Analysis of Democratic Institutions: Structure," Discussion Papers 1095, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Walker, James M. & Williams, Arlington W., 1988. "Market behavior in bid, offer, and double auctions : A Reexmination," Journal of Economic Behavior & Organization, Elsevier, vol. 9(3), pages 301-314, April.
    4. Jonathan Levin & Barry Nalebuff, 1995. "An Introduction to Vote-Counting Schemes," Journal of Economic Perspectives, American Economic Association, vol. 9(1), pages 3-26, Winter.
    5. Forsythe, Robert, et al, 1996. "An Experimental Study of Voting Rules and Polls in Three-Candidate Elections," International Journal of Game Theory, Springer, vol. 25(3), pages 355-83.
    6. Plott, Charles R. & Smith, Vernon L., . "An Experimental Examination of Two Exchange Institutions," Working Papers 83, California Institute of Technology, Division of the Humanities and Social Sciences.
    7. Ketcham, Jon & Smith, Vernon L & Williams, Arlington W, 1984. "A Comparison of Posted-Offer and Double-Auction Pricing Institutions," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 595-614, October.
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