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Can Real?Effort Investments Inhibit the Convergence of Experimental Markets?

  • Timothy Cason
  • Lata Gangadharan
  • Nikos Nikiforakis

Evidence shows that real-effort investments can affect bilateral bargaining outcomes. This paper investigates whether similar investments can inhibit equilibrium convergence of experimental markets. In one treatment, sellers’ relative effort affects the allocation of production costs, but a random productivity shock ensures that the allocation is not necessarily equitable. In another treatment, sellers’ effort increases the buyers’ valuation of a good. We find that effort investments have a short-lived impact on trading behavior when sellers’ effort benefits buyers, but no effect when effort determines cost allocation. Efficiency rates are high and do not differ across treatments.

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File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0008/801179/1089.pdf
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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1089.

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Length: 31 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:mlb:wpaper:1089
Contact details of provider: Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
Web page: http://www.economics.unimelb.edu.au
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