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Behavioral Efficiency II: A Simple Laboratory Demonstration

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Laboratory experiments reporting on shortfalls from allocative efficiency of allocation mechanisms depend on the induced-values methodology, which cannot be extended to the field. Harstad [2011] proposes to observe efficiency of allocation mechanisms without knowing motivations via behavior in appropriately designed aftermarkets. This paper demonstrates the approach in a highly simplified economy: allocation of a single unit of an abstract commodity. In the context studied, second-price auctions are observed to yield significantly greater behavioral inefficiencies than first-price auctions, both in terms of frequency of behaviorally inefficient outcomes, and in terms of the expected size of gains from aftermarket trade missed by the auction itself. The design is shown to be field-ready.

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File URL: http://economics.missouri.edu/working-papers/2011/WP1121_harstad.pdf
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Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 1121.

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Length: 10 pgs.
Date of creation: 09 Oct 2011
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Handle: RePEc:umc:wpaper:1121

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Keywords: behavioral efficiency; field experiment methodology; allocative efficiency; efficiency of auctions; aftermarkets;

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  1. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  2. Ronald Harstad, 2000. "Dominant Strategy Adoption and Bidders' Experience with Pricing Rules," Experimental Economics, Springer, vol. 3(3), pages 261-280, December.
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