IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v72y2009i1p240-259.html
   My bibliography  Save this article

Cheating in markets: A laboratory experiment

Author

Listed:
  • Cassar, Alessandra
  • Friedman, Daniel
  • Schneider, Patricia Higino

Abstract

We develop a two-market model under three conditions: autarky, frictionless free trade, and free trade with cheating. With cheating, buyers can underpay by [pi]% in cross-market trades and sellers can deliver [pi]% of full value. We solve for competitive equilibrium with cheating and obtain novel testable predictions on price, volume and surplus. We test these in a laboratory experiment using parameters intended to challenge the theory. The results are generally consistent with competitive equilibrium. We find evidence of price unification, market segmentation, a cross-market volume of trade lower under cheating than in frictionless free trade, but a higher overall volume.

Suggested Citation

  • Cassar, Alessandra & Friedman, Daniel & Schneider, Patricia Higino, 2009. "Cheating in markets: A laboratory experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 240-259, October.
  • Handle: RePEc:eee:jeborg:v:72:y:2009:i:1:p:240-259
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167-2681(09)00073-0
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marcel Fafchamps, 2004. "Market Institutions in Sub-Saharan Africa: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262062364, January.
    2. Dani Rodrik, 2000. "How Far Will International Economic Integration Go?," Journal of Economic Perspectives, American Economic Association, pages 177-186.
    3. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, Oxford University Press, pages 437-459.
    4. Charles N. Noussair & Charles R. Plott & Raymond G. Riezman, 2013. "An Experimental Investigation of the Patterns of International Trade," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 17, pages 299-328 World Scientific Publishing Co. Pte. Ltd..
    5. Paul Resnick & Richard Zeckhauser & John Swanson & Kate Lockwood, 2006. "The value of reputation on eBay: A controlled experiment," Experimental Economics, Springer;Economic Science Association, pages 79-101.
    6. Anderson James E & Young Leslie, 2006. "Trade and Contract Enforcement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1-36.
    7. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, pages 1-20.
    8. Friedman,Daniel & Sunder,Shyam, 1994. "Experimental Methods," Cambridge Books, Cambridge University Press, number 9780521456821, December.
    9. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, pages 342-352.
    10. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 111-111.
    11. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, pages 615-623.
    12. Marcouiller, Douglas & Young, Leslie, 1995. "The Black Hole of Graft: The Predatory State and the Informal Economy," American Economic Review, American Economic Association, pages 630-646.
    13. Paul Resnick & Richard Zeckhauser & John Swanson & Kate Lockwood, 2006. "The value of reputation on eBay: A controlled experiment," Experimental Economics, Springer;Economic Science Association, pages 79-101.
    14. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, Oxford University Press, pages 437-459.
    15. Marcel Fafchamps, 2006. "Development and social capital," Journal of Development Studies, Taylor & Francis Journals, pages 1180-1198.
    16. Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," The Journal of Legal Studies, University of Chicago Press, pages 115-157.
    17. Andreoni,J., 2005. "Trust, reciprocity, and contract enforcement : experiments on satisfaction guaranteed," Working papers 7, Wisconsin Madison - Social Systems.
    18. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, pages 1177-1203.
    19. Axel Leijonhufvud & Earlene Craver, 2001. "Reform and the fate of Russia," Documents de Travail de l'OFCE 2001-03, Observatoire Francais des Conjonctures Economiques (OFCE).
    20. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, pages 1029-1046.
    21. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
    22. Anderson, Steven & Friedman, Daniel & Milam, Garrett & Singh, Nirvikar, 2007. "Seller strategies on eBay: Does size matter?," MPRA Paper 4324, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alessandra Cassar & Giovanna d'Adda & Pauline Grosjean, 2014. "Institutional Quality, Culture, and Norms of Cooperation: Evidence from Behavioral Field Experiments," Journal of Law and Economics, University of Chicago Press, vol. 57(3), pages 821-863.
    2. Aidin Hajikhameneh & Jared Rubin, 2017. "Reputation and Multilateral Punishment under Uncertainty," Working Papers 17-14, Chapman University, Economic Science Institute.
    3. Jean Paul Rabanal & Olga A. Rabanal, 2015. "Does competition affect truth-telling? An experiment with rating agencies," Working Papers 2015-48, Peruvian Economic Association.
    4. van Veldhuizen, Roel, 2013. "The influence of wages on public officials' corruptibility: A laboratory investigation," Discussion Papers, Research Unit: Market Behavior SP II 2013-210, Social Science Research Center Berlin (WZB).
    5. van Veldhuizen, R., 2013. "The influence of wages on public officials’ corruptibility: A laboratory investigation," Journal of Economic Psychology, Elsevier, pages 341-356.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:72:y:2009:i:1:p:240-259. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jebo .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.