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Voting rules and endogenous trading institutions: An experimental study

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  • Søberg, Martin

    () (Statistics Norway)

Abstract

This paper reports on recurring laboratory elections in which buyers and sellers choose institutional rules to govern a subsequent trading round. The bid auction (buyers propose prices), offer auction (sellers suggest prices) and double auction (both trader types initiate price quotes) make up the electoral candidates. Both plurality rule and approval voting are used as vote-counting schemes. The former allows each trader to vote for at most one auction, whereas approval voting permits voters to either abstain or to vote for one, two or all three institutional alternatives. The main result is threefold.First, plurality rule induces a Duverger effect in the sense that just the bid and offer auction emerge as viable auctions. Approval voting instead leads to close three-way races with each of the three auctions winning approximately one third of the elections. Second, buyers (sellers) in the plurality rule sessions concordantly vote for the bid (offer) auction. Approval voting behavior is comparatively more heterogeneous. Third, bid auction prices are significantly lower than double auction prices, which again are significantly below offer auction prices.

Suggested Citation

  • Søberg, Martin, 2003. "Voting rules and endogenous trading institutions: An experimental study," Memorandum 17/2002, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:2002_017
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2002/Memo-17-2002.pdf
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    References listed on IDEAS

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    1. Charles R. Plott & Vernon L. Smith, 1978. "An Experimental Examination of Two Exchange Institutions," Review of Economic Studies, Oxford University Press, vol. 45(1), pages 133-153.
    2. Brams, Steven J & Nagel, Jack H, 1991. "Approval Voting in Practice," Public Choice, Springer, vol. 71(1-2), pages 1-17, August.
    3. Forsythe, Robert & Rietz, Thomas & Myerson, Roger & Weber, Robert, 1996. "An Experimental Study of Voting Rules and Polls in Three-Candidate Elections," International Journal of Game Theory, Springer;Game Theory Society, vol. 25(3), pages 355-383.
    4. Jonathan Levin & Barry Nalebuff, 1995. "An Introduction to Vote-Counting Schemes," Journal of Economic Perspectives, American Economic Association, vol. 9(1), pages 3-26, Winter.
    5. Jon Ketcham & Vernon L. Smith & Arlington W. Williams, 1984. "A Comparison of Posted-Offer and Double-Auction Pricing Institutions," Review of Economic Studies, Oxford University Press, vol. 51(4), pages 595-614.
    6. Walker, James M. & Williams, Arlington W., 1988. "Market behavior in bid, offer, and double auctions : A Reexmination," Journal of Economic Behavior & Organization, Elsevier, vol. 9(3), pages 301-314, April.
    7. Roger B. Myerson, 1994. "Analysis of Democratic Institutions: Structure," Discussion Papers 1095, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    More about this item

    Keywords

    Plurality rule; approval voting; sequential auctions; experimental economics;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General

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