IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp10105.html
   My bibliography  Save this paper

Where to Look for the Morals in Markets?

Author

Listed:
  • Sutter, Matthias

    (Max Planck Institute for Research on Collective Goods)

  • Huber, Jürgen
  • Kirchler, Michael

    (University of Innsbruck)

  • Stefan, Matthias

    (University of Innsbruck)

Abstract

Markets are ubiquitous in our daily life and, despite many imperfections, they are a great source of human welfare. Nevertheless, there is a heated recent debate on whether markets erode social responsibility and moral behavior. In fact, competitive pressure on markets may create strong incentives for unethical practices (like using child labor) to increase competitiveness. While markets have been considered as detrimental for moral behavior, it has turned out a challenging task to identify where moral behavior is reflected in a market. Recent work has suggested that falling prices in markets with externalities are an indicator of declining morals. Here we examine the relation between trading volume, prices and moral behavior by presenting an experimental study where we let buyers and sellers interact on a double auction market. In one set of treatments, concluding a trade has no externality; in the other set, there is a negative externality by voiding donations for a potentially life-saving measles vaccine to UNICEF. We find that moral behavior reveals itself in lower trading volume in markets with an externality, but that market prices are hardly different between markets with or without an externality. We also vary the number of buyers and sellers and show that prices depend mainly on the relative number of buyers and sellers, but not on the existence of an externality. Hence, the market forces of supply and demand work equally well in determining prices whether or not trading has an externality.

Suggested Citation

  • Sutter, Matthias & Huber, Jürgen & Kirchler, Michael & Stefan, Matthias, 2016. "Where to Look for the Morals in Markets?," IZA Discussion Papers 10105, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp10105
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp10105.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Edmonds, Eric V., 2008. "Child Labor," Handbook of Development Economics, in: T. Paul Schultz & John A. Strauss (ed.), Handbook of Development Economics, edition 1, volume 4, chapter 57, pages 3607-3709, Elsevier.
    2. Michael Kirchler & Jürgen Huber & Matthias Stefan & Matthias Sutter, 2016. "Market Design and Moral Behavior," Management Science, INFORMS, vol. 62(9), pages 2615-2625, September.
    3. Cason, Timothy N. & Gangadharan, Lata & Nikiforakis, Nikos, 2011. "Can real-effort investments inhibit the convergence of experimental markets?," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 97-103, January.
    4. John H. Kagel & Alvin E. Roth, 2016. "The Handbook of Experimental Economics, Volume 2," Economics Books, Princeton University Press, edition 1, volume 2, number 10874.
    5. Ben Greiner, 2015. "Subject pool recruitment procedures: organizing experiments with ORSEE," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 1(1), pages 114-125, July.
    6. Gary Charness & David Masclet & Marie Claire Villeval, 2014. "The Dark Side of Competition for Status," Management Science, INFORMS, vol. 60(1), pages 38-55, January.
    7. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2011. "Individual Risk Attitudes: Measurement, Determinants, And Behavioral Consequences," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 522-550, June.
    8. Rainald Borck & Dirk Engelmann & Wieland Müller & Hans‐Theo Normann, 2002. "Tax Liability‐Side Equivalence in Experimental Posted‐Offer Markets," Southern Economic Journal, John Wiley & Sons, vol. 68(3), pages 672-682, January.
    9. Muriel Niederle & Lise Vesterlund, 2007. "Do Women Shy Away From Competition? Do Men Compete Too Much?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(3), pages 1067-1101.
    10. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    11. Franciosi, Robert, et al, 1995. "Fairness: Effect on Temporary and Equilibrium Prices in Posted-Offer Markets," Economic Journal, Royal Economic Society, vol. 105(431), pages 938-950, July.
    12. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    13. Andrei Shleifer, 2004. "Does Competition Destroy Ethical Behavior?," American Economic Review, American Economic Association, vol. 94(2), pages 414-418, May.
    14. Uri Gneezy & Alex Imas & Kristóf Madarász, 2012. "Conscience Accounting: Emotional Dynamics and Social Behavior," STICERD - Theoretical Economics Paper Series 563, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    15. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    16. Gary Charness & David Masclet & Marie Claire Villeval, 2014. "The Dark Side of Competition for Status (preprint)," Working Papers halshs-01090241, HAL.
    17. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 817-869.
    18. Irlenbusch, Bernd & Saxler, David, 2015. "Social Responsibility in Market Interaction," IZA Discussion Papers 9240, Institute of Labor Economics (IZA).
    19. Björn Bartling & Roberto A. Weber & Lan Yao, 2015. "Do Markets Erode Social Responsibility?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(1), pages 219-266.
    20. Bernd Irlenbusch & David J. Saxler, 2015. "Social responsibility in market interaction," Cologne Graduate School Working Paper Series 06-05, Cologne Graduate School in Management, Economics and Social Sciences.
    21. Raghuram G. Rajan, 2006. "Has Finance Made the World Riskier?," European Financial Management, European Financial Management Association, vol. 12(4), pages 499-533, September.
    22. Jordi Brandts & Gary Charness, 2011. "The strategy versus the direct-response method: a first survey of experimental comparisons," Experimental Economics, Springer;Economic Science Association, vol. 14(3), pages 375-398, September.
    23. Thorstein Veblen, 1899. "Mr. Cummings's Strictures on "The Theory of the Leisure Class"," Journal of Political Economy, University of Chicago Press, vol. 8(1), pages 106-106.
    24. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September.
    25. John A. List, 2011. "The Market for Charitable Giving," Journal of Economic Perspectives, American Economic Association, vol. 25(2), pages 157-180, Spring.
    26. Uri Gneezy & Alex Imas & Kristóf Madarász, 2014. "Conscience Accounting: Emotion Dynamics and Social Behavior," Management Science, INFORMS, vol. 60(11), pages 2645-2658, November.
    27. Veblen, Thorstein, 1899. "The Theory of the Leisure Class," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number veblen1899.
    28. Rainald Borck & Dirk Engelmann & Wieland Müller & Hans-Theo Normann, 2002. "Tax Liability-Side Equivalence in Experimental Posted-Offer Markets," Southern Economic Journal, John Wiley & Sons, vol. 68(3), pages 672-682, January.
    29. Adrian Bruhin & Helga Fehr-Duda & Thomas Epper, 2010. "Risk and Rationality: Uncovering Heterogeneity in Probability Distortion," Econometrica, Econometric Society, vol. 78(4), pages 1375-1412, July.
    30. Kleinlercher, Daniel & Huber, Jürgen & Kirchler, Michael, 2014. "The impact of different incentive schemes on asset prices," European Economic Review, Elsevier, vol. 68(C), pages 137-150.
    31. Bernd Irlenbusch & Marie Claire Villeval, 2015. "Behavioral ethics: how psychology influenced economics and how economics might inform psychology?," Post-Print halshs-01159696, HAL.
    32. Breyer, Friedrich & Weimann, Joachim, 2015. "Of morals, markets and mice: Be careful drawing policy conclusions from experimental findings!," European Journal of Political Economy, Elsevier, vol. 40(PB), pages 387-390.
    33. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-632, Nov.-Dec..
    34. Bock, Olaf & Baetge, Ingmar & Nicklisch, Andreas, 2014. "hroot: Hamburg Registration and Organization Online Tool," European Economic Review, Elsevier, vol. 71(C), pages 117-120.
    35. Ockenfels, Axel & Weimann, Joachim, 1999. "Types and patterns: an experimental East-West-German comparison of cooperation and solidarity," Journal of Public Economics, Elsevier, vol. 71(2), pages 275-287, February.
    36. Alexander W. Cappelen & Trond Halvorsen & Erik Ø. Sørensen & Bertil Tungodden, 2017. "Face-saving or fair-minded: What motivates moral behavior?," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 540-557.
    37. Paul M. Healy & Krishna G. Palepu, 2003. "The Fall of Enron," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 3-26, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bartling, Björn & Grieder, Manuel & Zehnder, Christian, 2017. "Competitive pricing reduces wasteful counterproductive behaviors," Journal of Public Economics, Elsevier, vol. 156(C), pages 34-47.
    2. Simon Dato & Petra Nieken, 2020. "Gender differences in sabotage: the role of uncertainty and beliefs," Experimental Economics, Springer;Economic Science Association, vol. 23(2), pages 353-391, June.
    3. Gehrlein, Jonas & Crede, Ann-Kathrin & Adrian, Nana, 2020. "The impact of markets on moral reasoning: Evidence from an online experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).
    4. Matthias Stefan & Jürgen Huber & Michael Kirchler & Matthias Sutter & Markus Walzl, 2020. "Monetary and Social Incentives in Multi-Tasking: The Ranking Substitution Effect," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2020_10, Max Planck Institute for Research on Collective Goods.
    5. Gangadharan, Lata & Nikiforakis, Nikos & Villeval, Marie Claire, 2017. "Normative conflict and the limits of self-governance in heterogeneous populations," European Economic Review, Elsevier, vol. 100(C), pages 143-156.
    6. Buser, Thomas & Cappelen, Alexander & Tungodden, Bertil, 2021. "Fairness and Willingness to Compete," Discussion Paper Series in Economics 8/2021, Norwegian School of Economics, Department of Economics.
    7. Schwaninger, Manuel, 2022. "Sharing with the powerless third: Other-regarding preferences in dynamic bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 341-355.
    8. Bartling, Björn & Özdemir, Yagiz, 2023. "The limits to moral erosion in markets: Social norms and the replacement excuse," Games and Economic Behavior, Elsevier, vol. 138(C), pages 143-160.
    9. Carlos Alós-Ferrer & Jaume García-Segarra & Alexander Ritschel, 2018. "The Big Robber Game," ECON - Working Papers 291, Department of Economics - University of Zurich.
    10. Grundmann, Susanna, 2020. "Do just deserts and competition shape patterns of cheating?," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-79-20, University of Passau, Faculty of Business and Economics.
    11. Hermes, Henning & Huschens, Martin & Rothlauf, Franz & Schunk, Daniel, 2021. "Motivating low-achievers—Relative performance feedback in primary schools," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 45-59.
    12. Lindner, Florian & Kirchler, Michael & Rosenkranz, Stephanie & Weitzel, Utz, 2021. "Social Motives and Risk-Taking in Investment Decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 127(C).
    13. Karen Evelyn Hauge & Snorre Kverndokk & Andreas Lange, 2021. "Why People Oppose Trade Institutions - On Morality, Fairness and Risky Actions," CESifo Working Paper Series 9456, CESifo.
    14. Zhixin Dai & Fabio Galeotti & Marie Claire Villeval, 2018. "Cheating in the Lab Predicts Fraud in the Field: An Experiment in Public Transportation," Management Science, INFORMS, vol. 64(3), pages 1081-1100, March.
    15. Müller, Stephan & Rau, Holger A., 2019. "Decisions under uncertainty in social contexts," Games and Economic Behavior, Elsevier, vol. 116(C), pages 73-95.
    16. Gago, Andrés, 2021. "Reciprocity and uncertainty: When do people forgive?," Journal of Economic Psychology, Elsevier, vol. 84(C).
    17. Engelmann, Dirk & Friedrichsen, Jana & Kübler, Dorothea, 2018. "Fairness in Markets and Market Experiments," Rationality and Competition Discussion Paper Series 64, CRC TRR 190 Rationality and Competition.
    18. Yola Engler & Lionel Page, 2022. "Driving a hard bargain is a balancing act: how social preferences constrain the negotiation process," Theory and Decision, Springer, vol. 93(1), pages 7-36, July.
    19. Florian Lindner & Michael Kirchler & Stephanie Rosenkranz & Utz Weitzel, 2019. "Social Status and Risk-Taking in Investment Decisions," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2019_07, Max Planck Institute for Research on Collective Goods.
    20. Feltovich, Nick, 2019. "Is earned bargaining power more fully exploited?," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 152-180.

    More about this item

    Keywords

    morals; markets; competition; experiment;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:iza:izadps:dp10105. See general information about how to correct material in RePEc.

    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 bibliographic 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.