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Do Legal Standards Affect Ethical Concerns of Consumers?

  • Dirk Engelmann
  • Dorothea Kübler

In order to address the impact of regulation on ethical concerns of consumers, we study the effect of a minimum wage. In our experimental market, consumers have monopsony power, firms engage in Bertrand competition, and workers are passive recipients of a wage payment. Two treatments are employed, one with no minimum wage in the first part but with a minimum wage in the second part, and one treatment with a minimum wage at the outset that is abolished in the second part. In both treatments, wages decrease over time in the first part even though some consumers show an interest in fair wages. If a minimum wage is in place, wages decline even faster. Introducing a minimum wage in a mature market raises average wages, while abolishing it lowers them. We discuss the implications of our results, such as the crowding out of ethical behavior through legal regulation.

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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-008.

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Length: 36 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2008-008
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