IDEAS home Printed from https://ideas.repec.org/p/pur/prukra/1232.html
   My bibliography  Save this paper

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

Author

Listed:
  • Timothy N. Cason
  • Lata Gangadharan
  • Nikos Nikiforakis

Abstract

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.

Suggested Citation

  • Timothy N. Cason & Lata Gangadharan & Nikos Nikiforakis, 2010. "Can Real-Effort Investments Inhibit the Convergence of Experimental Markets?," Purdue University Economics Working Papers 1232, Purdue University, Department of Economics.
  • Handle: RePEc:pur:prukra:1232
    as

    Download full text from publisher

    File URL: https://krannert.purdue.edu/programs/phd/Working-papers-series/2010/1232.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
    2. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    3. Todd L. Cherry & Peter Frykblom & Jason F. Shogren, 2002. "Hardnose the Dictator," American Economic Review, American Economic Association, vol. 92(4), pages 1218-1221, September.
    4. Ruffle, Bradley J., 1998. "More Is Better, But Fair Is Fair: Tipping in Dictator and Ultimatum Games," Games and Economic Behavior, Elsevier, vol. 23(2), pages 247-265, May.
    5. Oxoby, Robert J. & Spraggon, John, 2008. "Mine and yours: Property rights in dictator games," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 703-713, March.
    6. 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.
    7. 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.
    8. 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.
    9. Cason, Timothy N. & Williams, Arlington W., 1990. "Competitive equilibrium convergence in a posted-offer market with extreme earnings inequities," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 331-352, December.
    10. Garcia-Gallego, Aurora & Georgantzis, Nikolaos & Jaramillo-Gutierrez, Ainhoa, 2008. "Ultimatum salary bargaining with real effort," Economics Letters, Elsevier, vol. 98(1), pages 78-83, January.
    11. Plott, Charles R., 1989. "An updated review of industrial organization: Applications of experimental methods," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 19, pages 1109-1176, Elsevier.
    12. 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.
    13. James Konow, 2000. "Fair Shares: Accountability and Cognitive Dissonance in Allocation Decisions," American Economic Review, American Economic Association, vol. 90(4), pages 1072-1091, September.
    14. 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.
    15. Matt Parrett, 2006. "An Analysis of the Determinants of Tipping Behavior: A Laboratory Experiment and Evidence from Restaurant Tipping," Southern Economic Journal, John Wiley & Sons, vol. 73(2), pages 489-514, October.
    16. James Konow, 2003. "Which Is the Fairest One of All? A Positive Analysis of Justice Theories," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1188-1239, December.
    17. McDonald, Ian M. & Nikiforakis, Nikos & Olekalns, Nilss & Sibly, Hugh, 2013. "Social comparisons and reference group formation: Some experimental evidence," Games and Economic Behavior, Elsevier, vol. 79(C), pages 75-89.
    18. Nisvan Erkal & Lata Gangadharan & Nikos Nikiforakis, 2011. "Relative Earnings and Giving in a Real-Effort Experiment," American Economic Review, American Economic Association, vol. 101(7), pages 3330-3348, December.
    19. Kachelmeier, Steven J. & Shehata, Mohamed, 1992. "Culture and competition: A laboratory market comparison between China and the West," Journal of Economic Behavior & Organization, Elsevier, vol. 19(2), pages 145-168, October.
    20. Michael E. Porter & Claas van der Linde, 1995. "Toward a New Conception of the Environment-Competitiveness Relationship," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 97-118, Fall.
    21. Fahr, Rene & Irlenbusch, Bernd, 2000. "Fairness as a constraint on trust in reciprocity: earned property rights in a reciprocal exchange experiment," Economics Letters, Elsevier, vol. 66(3), pages 275-282, March.
    22. Bradley J. Ruffle, 2000. "Some factors affecting demand withholding in posted-offer markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(3), pages 529-544.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Großer, Jens & Reuben, Ernesto, 2013. "Redistribution and market efficiency: An experimental study," Journal of Public Economics, Elsevier, vol. 101(C), pages 39-52.
    2. Matthias Sutter & Jürgen Huber & Michael Kirchler & Matthias Stefan & Markus Walzl, 2020. "Where to look for the morals in markets?," Experimental Economics, Springer;Economic Science Association, vol. 23(1), pages 30-52, March.
    3. Benndorf, Volker & Rau, Holger A. & Sölch, Christian, 2019. "Minimizing learning in repeated real-effort tasks," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 239-248.
    4. Tse, Alan & Friesen, Lana & Kalaycı, Kenan, 2016. "Complexity and asset legitimacy in retirement investment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 60(C), pages 35-48.
    5. Nejat Anbarci & Nick Feltovich, 2018. "Pricing in Competitive Search Markets: The Roles of Price Information and Fairness Perceptions," Management Science, INFORMS, vol. 64(3), pages 1101-1120, March.

    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. Rodriguez-Lara, Ismael, 2016. "Equity and bargaining power in ultimatum games," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 144-165.
    2. Anbarci, Nejat & Feltovich, Nick, 2018. "How fully do people exploit their bargaining position? The effects of bargaining institution and the 50–50 norm," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 320-334.
    3. Rode, Julian & Le Menestrel, Marc, 2011. "The influence of decision power on distributive fairness," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 246-255, August.
    4. Cetre, Sophie & Lobeck, Max & Senik, Claudia & Verdier, Thierry, 2019. "Preferences over income distribution: Evidence from a choice experiment," Journal of Economic Psychology, Elsevier, vol. 74(C).
    5. Mengjie Wang, 2017. "Does strategy fairness make inequality more acceptable?," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 17-08, School of Economics, University of East Anglia, Norwich, UK..
    6. Feltovich, Nick, 2019. "Is earned bargaining power more fully exploited?," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 152-180.
    7. Ismael Rodriguez-Lara & Luis Moreno-Garrido, 2012. "Self-interest and fairness: self-serving choices of justice principles," Experimental Economics, Springer;Economic Science Association, vol. 15(1), pages 158-175, March.
    8. Gerald Eisenkopf, 2018. "Unequal Incentives and Perceived Fairness in Groups," Games, MDPI, Open Access Journal, vol. 9(3), pages 1-18, September.
    9. Robert J. Oxoby & John Spraggon, 2013. "A Clear And Present Minority: Heterogeneity In The Source Of Endowments And The Provision Of Public Goods," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2071-2082, October.
    10. Tonin, Mirco & Vlassopoulos, Michael, 2017. "Sharing one’s fortune? An experimental study on earned income and giving," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 66(C), pages 112-118.
    11. Eisenkopf, Gerald & Fischbacher, Urs & Föllmi-Heusi, Franziska, 2013. "Unequal opportunities and distributive justice," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 51-61.
    12. Simon Gächter & Arno Riedl, 2005. "Moral Property Rights in Bargaining with Infeasible Claims," Management Science, INFORMS, vol. 51(2), pages 249-263, February.
    13. Nisvan Erkal & Lata Gangadharan & Nikos Nikiforakis, 2011. "Relative Earnings and Giving in a Real-Effort Experiment," American Economic Review, American Economic Association, vol. 101(7), pages 3330-3348, December.
    14. Xu, Zhicheng & Palma, Marco A., 2015. "To buy or not buy (insurance)? An experiment on public funds distribution under different rooted risks," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196649, Southern Agricultural Economics Association.
    15. Laura K. Gee & Marco Migueis & Sahar Parsa, 2017. "Redistributive choices and increasing income inequality: experimental evidence for income as a signal of deservingness," Experimental Economics, Springer;Economic Science Association, vol. 20(4), pages 894-923, December.
    16. Antinyan, Armenak & Corazzini, Luca & Neururer, Daniel, 2015. "Public good provision, punishment, and the endowment origin: Experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 56(C), pages 72-77.
    17. Gangadharan, Lata & Grossman, Philip J. & Vecci, Joe, 2021. "Moving on up: The impact of income mobility on antisocial behaviour," European Economic Review, Elsevier, vol. 134(C).
    18. Robert Oxoby, 2013. "Paretian dictators: constraining choice in a voluntary contribution game," Constitutional Political Economy, Springer, vol. 24(2), pages 125-138, June.
    19. Moreno-Garrido, Luis José Blas, 2013. "Relative Injustice Aversion," QM&ET Working Papers 13-4, University of Alicante, D. Quantitative Methods and Economic Theory, revised 27 Jul 2015.
    20. Jones, Luke & Cseh, Attila, 2021. "Earning responsibility increases risk taking among representative decision makers," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 317-329.

    More about this item

    Keywords

    Property Rights; Real Effort; Posted Offer Markets; Random Shock; Surplus Creation;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

    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:pur:prukra:1232. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/kspurus.html .

    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: Krannert PHD (email available below). General contact details of provider: https://edirc.repec.org/data/kspurus.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.