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Does Fairness Prevent Market Clearing? An Experimental Investigation

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  • Ernst Fehr
  • Georg Kirchsteiger
  • Arno Riedl

Abstract

This paper reports the results of an experiment that was designed to test the impact of fairness on market prices. Prices were determined in a one-sided oral auction, with buyers as price-makers. Upon acceptance of an offer, sellers determined the quality of the good. Buyers offered prices that were substantially above the market-clearing level and expected sellers to respond with high quality levels. This expectation was, on average, confirmed by the behavior of sellers. These results provide, therefore, experimental support for the fair wage-effort theory of involuntary unemployment.
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Suggested Citation

  • Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/5927
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