Behavioral Efficiency I: Definition, Methodology and Demonstration
AbstractEconomic experiments conducted in laboratories employing an induced-values methodology can report on allocative efficiencies observed. This methodology is limited by requiring the experimenter to know subjects' motivations, an impossibility in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An outcome of an allocation mechanism is herein defined to be behaviorally efficient if an appropriate aftermarket is actually appended to the allocation mechanism and at most a negligible aggregate size of mutually beneficial gains is observed on the aftermarket. Methodological requirements for observation of behavioral efficiency or inefficiency are put forward. A simple field demonstration indicates when an increase in public good output can cover marginal cost in a mutually beneficial decentralization, without knowing valuations. Several empirical issues that arise with the methodology are noted.
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Bibliographic InfoPaper provided by Department of Economics, University of Missouri in its series Working Papers with number 1120.
Length: 15 pgs.
Date of creation: 04 Sep 2011
Date of revision:
behavioral efficiency; field experiment methodology; allocative efficiency; revelation of valuations; aftermarkets;
Other versions of this item:
- Ronald M Harstad, 2011. "Behavioral Efficiency I: Definition, Methodology and Demonstration," ISER Discussion Paper 0818, Institute of Social and Economic Research, Osaka University.
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
- C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
- D46 - Microeconomics - - Market Structure and Pricing - - - Value Theory
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