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Efficiency Measurement via Revealed Thresholds, Without Knowing Valuations

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Abstract

Laboratory experiments employing an induced-values methodology often report on allocative efficiencies observed. That methodology requires experimenters know subjects’ motivations precisely, questionable in labs, impossible in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An allocation mechanism’s outcome is defined to be behaviorally efficient if an appropriate aftermarket is actually appended to the mechanism and measures at most a negligible size of remaining mutually beneficial gains. Methodological requirements for an appropriate aftermarket are specified. A first demonstration observes more frequent and ex-ante larger behavioral inefficiencies in second- than in first-price auctions. A simple field demonstration indicates when a public-good increase can be observed to cover marginal cost to subjects’ mutual benefit, without knowing valuations. A wide variety of empirical economic-policy studies can utilize this methodology to observe comparative evidence of alternative policies’ allocativeefficiency shortfalls.

Suggested Citation

  • Ronald M. Harstad, 2016. "Efficiency Measurement via Revealed Thresholds, Without Knowing Valuations," Working Papers 1603, Department of Economics, University of Missouri.
  • Handle: RePEc:umc:wpaper:1603
    Note: This paper combines and updates work in WP11-20 & WP11-21
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    More about this item

    Keywords

    revealed thresholds; behavioral efficiency; aftermarkets; field experiment methodology; allocative efficiency; empirical political economy; valuation revelation;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory

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