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Ranking alternatives by a fair bidding rule: A theoretical and experimental analysis

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  • Güth, Werner
  • Vittoria Levati, M.
  • Montinari, Natalia

Abstract

We apply a procedurally fair rule to a situation where people disagree about the value of three alternatives in the way captured by the voting paradox. The rule allows people to select a final collective ranking by submitting a bid vector with six components (the six possible rankings of the three alternatives). We test experimentally the robustness of the rule to subsidies and taxes as well as to tie-breaking assumptions. We have two main results. First, the most frequently chosen ranking is the socially efficient one when ties are broken in favor of the alternative generating the highest social welfare, but not when ties are broken randomly. Second, subsidies slightly enhance overbidding. Furthermore, an analysis of individual bid vectors reveals interesting behavioral regularities that result from selfishness, other-regarding preferences, and indifference.

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  • Güth, Werner & Vittoria Levati, M. & Montinari, Natalia, 2014. "Ranking alternatives by a fair bidding rule: A theoretical and experimental analysis," European Journal of Political Economy, Elsevier, vol. 34(C), pages 206-221.
    • Handle: RePEc:eee:poleco:v:34:y:2014:i:c:p:206-221
    DOI: 10.1016/j.ejpoleco.2014.01.007
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    Cited by:

    1. Werner Güth & Hartmut Kliemt & Anastasios Koukoumelis & M. Vittoria Levati & Matteo Ploner, 2013. "Procedurally fair collective provision: its requirements and experimental functionality," Jena Economics Research Papers 2013-034, Friedrich-Schiller-University Jena.
    2. Werner Güth & Anastasios Koukoumelis & M. Vittoria Levati & Matteo Ploner, 2012. "Public projects benefiting some and harming others: three experimental studies," Jena Economics Research Papers 2012-034, Friedrich-Schiller-University Jena.
    3. Güth, Werner, 2014. "Endogenous community formation and collective provision – A procedurally fair mechanism," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 389-395.
    4. Werner Güth & Anastasios Koukoumelis & M. Vittoria Levati & Matteo Ploner, 2013. "Providing negative cost public projects under a fair mechanism: An experimental analysis," Jena Economics Research Papers 2013-021, Friedrich-Schiller-University Jena.
    5. Güth, Werner & Koukoumelis, Anastasios & Levati, M. Vittoria & Ploner, Matteo, 2014. "Providing revenue-generating projects under a fair mechanism: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 410-419.
    6. Federica Alberti & Werner Güth & Kei Tsutsui, 2020. "Experimental effects of institutionalizing co-determination by a procedurally fair bidding rule," Working Papers in Economics & Finance 2020-10, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    7. Güth Werner, 2014. "Institutional Regulation of Public Provision," Review of Law & Economics, De Gruyter, vol. 10(1), pages 1-14, March.

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    More about this item

    Keywords

    Bidding behavior; Procedural fairness; Voting paradox;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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