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An Offer You Can't Refuse? Testing Undue Inducement

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  • Sandro Ambuehl

Abstract

Around the world, laws limit incentives for transactions such as clinical trial participation, egg donation, or gestational surrogacy. A key reason is the notion of undue inducement−the conceptually vague and empirically largely untested idea that incentives cause harm by distorting individual decision making. Two experiments, including one based on a highly visceral transaction, show that incentives bias information search. Yet, such behavior is also consistent with Bayes-rational behavior. I develop a criterion that indicates whether choices admit welfare weights on benefit and harm that justify permitting the transaction but capping incentives. In my experimental data, no such weights exist.

Suggested Citation

  • Sandro Ambuehl, 2017. "An Offer You Can't Refuse? Testing Undue Inducement," CESifo Working Paper Series 6296, CESifo.
  • Handle: RePEc:ces:ceswps:_6296
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp6296.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    incentives; undue inducement; repugnant transactions; information acquisition; experiment;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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