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Can real-effort investments inhibit the convergence of experimental markets?

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  • Cason, Timothy N.
  • Gangadharan, Lata
  • Nikiforakis, Nikos

Abstract

Evidence shows that real-effort investments can affect bilateral bargaining outcomes. This paper investigates whether similar investments can inhibit equilibrium convergence of experimental markets. In one treatment, sellers' relative effort affects the allocation of production costs, but a random productivity shock ensures that the allocation is not necessarily equitable. In another treatment, sellers' effort increases the buyers' valuation of a good. We find that effort investments have a short-lived impact on trading behavior when sellers' effort benefits buyers, but no effect when effort determines cost allocation. Efficiency rates are high and do not differ across treatments.

Suggested Citation

  • Cason, Timothy N. & Gangadharan, Lata & Nikiforakis, Nikos, 2011. "Can real-effort investments inhibit the convergence of experimental markets?," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 97-103, January.
  • Handle: RePEc:eee:indorg:v:29:y:2011:i:1:p:97-103
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    Cited by:

    1. Großer, Jens & Reuben, Ernesto, 2013. "Redistribution and market efficiency: An experimental study," Journal of Public Economics, Elsevier, vol. 101(C), pages 39-52.
    2. Tse, Alan & Friesen, Lana & Kalaycı, Kenan, 2016. "Complexity and asset legitimacy in retirement investment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 60(C), pages 35-48.

    More about this item

    Keywords

    Property rights Real effort Posted-offer markets Random shock Surplus creation;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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