nep-exp New Economics Papers
on Experimental Economics
Issue of 2005‒05‒07
ten papers chosen by
Daniel Houser
George Mason University

  1. Labour Market Institutions Without Blinders: The Debate over Flexibility and Labour Market Performance By Richard B. Freeman
  2. Effects of culture on tax compliance: A cross check of experimental and survey evidence By Ronald G. Cummings; Jorge Martinez-Vazquez; Michael McKee; Benno Torgler
  3. Tax Policy Design in The Presence of Social Preferences: Some Experimental Evidence By Lucy F. Ackert; Jorge Martinez-Vazquez; Mark Rider
  4. Law and behaviours in social dilemmas: testing the effect of obligations on cooperation By Galbiati,Roberto; Vertova,Pietro
  5. Cognition in spatial dispersion games By Blume,Andreas; DeJong,Douglas V.; Maier,Michael
  6. The Problem of Cooperation and Reputation Based Choice By Bergh, Andreas; Engseld, Peter
  7. Bringing Macroeconomics into the Lab. By Roberto Ricciuti
  8. Testing Explanations of Preference Reversal: a Model By Yves Alarie; Georges Dionne
  9. Does Format of Pricing Contract Matter? By Teck-Hua Ho; Juanjuan Zhang
  10. When Curiosity Kills the Profits: an Experimental Examination By Julian Jamison; Dean S. Karlan

  1. By: Richard B. Freeman
    Abstract: The debate over the influence of labour market flexibility on performance is unlikely to be settled by additional studies using aggregate data and making cross-country comparisons. While this approach holds little promise, micro-analysis of workers and firms and increased use of experimental methods represent a path forward. Steps along this path could help end the current 'lawyer's case' empiricism in which priors dominate evidence.
    JEL: J0
    Date: 2005–05
  2. By: Ronald G. Cummings; Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Michael McKee; Benno Torgler
    Abstract: There is considerable evidence that enforcement efforts can increase tax compliance. However, there must be other forces at work because observed compliance levels cannot be fully explained by the level of enforcement actions typical of most tax authorities. Further, there are observed differences, not related to enforcement effort, in the levels of compliance across countries and cultures. To fully understand differences in compliance behavior across cultures one needs to understand differences in tax administration and citizen attitudes toward governments. The working hypothesis is that cross-cultural differences in behavior have foundations in these institutions. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources. Results from laboratory experiments conducted in different countries demonstrate that observed differences in tax compliance levels can be explained by differences in the fairness of tax administration, in the perceived fiscal exchange, and in the overall attitude towards the respective governments. These experimental results are shown to be robust by replicating them for the same countries using survey response measures of “tax morale.”
    Keywords: tax compliance, tax morale, tax authorities
    Date: 2004–08–01
  3. By: Lucy F. Ackert; Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Mark Rider (Andrew Young School of Policy Studies, Georgia State University)
    Abstract: This paper reports the results of experiments designed to examine whether a taste for fairness affects people’s preferred tax structure. Building on the Fehr and Schmidt (1999) model we devise a simple test for the presence of social preferences in voting for alternative tax structures. The experimental results show that individuals demonstrate concern for their own payoff and inequality aversion in choosing between alternative tax structures. However, concern for redistribution decreases when it leads to increasing deadweight losses. Our findings have important implications for the design of optimal tax theory.
    Keywords: tax policy, social preferences, fairness
    Date: 2004–11–01
  4. By: Galbiati,Roberto; Vertova,Pietro (Tilburg University, Center for Economic Research)
    Abstract: Laws consist of two components: the 'obligations' they express and the 'incentives' designed to enforce them. In this paper we run a public good experiment to test whether or not obligations have any independent effect on cooperation in social dilemmas. The results show that, for given marginal incentives, different levels of minimum contribution required by obligation determine significantly different levels of average contributions. Moreover, unexpected changes in the minimum contribution set up by obligation have asymmetric dynamic effects on the levels of cooperation: a reduction does not alter the descending trend of cooperation, whereas an increase induces a temporary re-start in the average level of cooperation. Nonetheless, obligations per se cannot sustain cooperation over time.
    JEL: C91 C92 H26 H41 K40
    Date: 2005
  5. By: Blume,Andreas; DeJong,Douglas V.; Maier,Michael (Tilburg University, Center for Economic Research)
    Abstract: In common-interest spatial-dispersion games the agents common goal is to choose distinct locations. We experimentally investigate the role of cognition in such games and compare it with the role of cognition in spatial matching games. In our setup cognition matters because agents may be differentially aware of the dispersion opportunities that are created by the history of the game. We ask whether cognitive constraints limit the agents ability to achieve dispersion and, if there is dispersion, whether these constraints affect the mode by which agents achieve dispersion. Our main finding is that strategic interaction magnifies the role of cognitive constraints. Specifically, with cognitive constraints, pairs of agents fail to solve a dispersion problem that poses little or no problem for individual agents playing against themselves. When we remove the cognitive constraints in our design, pairs of agents solve the same problem just as well as individuals do. In addition, we find that when playing against themselves agents do not change the mode by which they solve the dispersion problem when our design removes the cognitive constraints.
    JEL: C72 C92
    Date: 2005
  6. By: Bergh, Andreas (Department of Economics, Lund University); Engseld, Peter (Department of Economics, Lund University)
    Abstract: The standard method when analyzing the problem of cooperation using evolutionary game theory is to assume that people are randomly matched against each other in repeated games. In this paper we discuss the implications of allowing agents to have preferences over possible opponents. We model reputation as a noisy observation of actual propensity to cooperate and illustrate how reputation based choice of opponents can explain both the emergence and deterioration of cooperation. We show that empirical and experimental evidence of cooperation is consistent with our hypothesis that people behave so as to minimize the risk of damaging their reputation as nice, cooperative persons.
    Keywords: Cooperation; Prisoners Dilemma; Signaling; Reputation; Altruism; Institutions
    JEL: C70 C90
    Date: 2005–04–28
  7. By: Roberto Ricciuti
    Abstract: This paper reviews experiments in macroeconomics, pointing out the theoretical justifications, the strengths and weaknesses of this approach. We identify two broad classes of experiments: general equilibrium and partial equilibrium experiments, and emphasize the idea of theory testing that is behind these. A large number of macroeconomic issues have been analyzed in the laboratory spanning from monetary economics to fiscal policy, from international trade and finance, to growth and macroeconomic imperfections. In a large number of cases results give support to the theories tested. We also highlight that experimental macroeconomics has increased the number of tools available to experimentalists.
    Keywords: Macroeconomics; experiments
  8. By: Yves Alarie; Georges Dionne
    Abstract: When Cubitt, Munro and Starmer (2004) presented their new experimental investigation of preference reversal, they pointed out that their test results cannot be explained by any of the best-known explanations proposed by economists and psychologists. In this paper we propose a model based on lotteries qualities to explain these new test results.
    Keywords: Standard preference reversal, counter preference reversal, choice task, money valuation task, probability valuation task, lottery, test
    JEL: D80
    Date: 2005
  9. By: Teck-Hua Ho (Univeristy of California, Berkeley); Juanjuan Zhang (University of California, Berkeley)
    Abstract: The use of linear wholesale price contract has long been recognized as a threat to achieving channel effciency. Many formats of nonlinear pricing contract have been proposed to achieve vertical channel coordination. Examples include two-part tariff and quantity discount. A two-part tariff charges the downstream party a fixed fee for participation and a uniform unit price. A quantity discount contract does not include a fixed fee and charges a lower unit price for each additional unit. Extant economic theories predict these contracts, when chosen optimally, to be revenue and division equivalent in that they all restore full channel effciency and give the same surplus to the upstream party assuming constant relative bargaining power. We conduct a laboratory experiment to test the empirical equivalence of the two pricing formats. Surprisingly, both pricing formats fail to coordinate the channel even in a well-controlled market environment with subjects motivated by significant monetary incentives. The observed channl effciencies were significantly lower than 100%. In fact, they are statistically no better than that of the linear wholesale price contract. Revenue equivalence fails because the quantity discount scheme achieves a higher channel effciency than the two-part tariff. Also, division equivalence does not hold because the quantity discount scheme accords a higher surplus to the upstream party than the two-part tariff. To account for the observed empirical regularities, we allow the downstream party to have a reference-dependent utility in which the upfront fixed fee is framed as loss andn the subsequent contribution margin as gain. The proposed model nests the standard economic model as a special case with a loss aversion coeffcient of 1.0. The estimated loss aversion coeffcient is 1.6, thereby rejecting the standard model. We rule out other plausible explanations such as parties having fairness concerns and non-linear risk attitudes.
    Keywords: Pricing Format, Two-Part Tariff, Quantity Discount, Channel Efficiency, Double Marginalization, Reference-Dependent Utility, Experimental Economics, Behavioral Economics
    JEL: C1 C2 C3 C4 C5 C8
    Date: 2005–04–29
  10. By: Julian Jamison (University of California, Berkeley & San Francisco); Dean S. Karlan (Princeton University)
    Abstract: Economic theory predicts that in a first-price auction with equal and observable valuations, bidders earn zero profits. Theory also predicts that if valuations are not common knowledge, then since it is weakly dominated to bid your valuation, bidders will bid less and earn positive profits. Hence, rational players in an auction game should prefer less public information. We are perhaps more used to seeing these results in the equivalent Bertrand setting. In our experimental auction, we find that individuals without information on each other's valuations earn more profits than those with common knowledge. Then, given a choice between the two sets of rules, half the individuals still preferred to have the public information. We discuss possible explanations, including ambiguity aversion.
    Keywords: First-price auctions, experiments, value of information, common knowledge, ambiguity aversion, Bertrand, public information
    JEL: C91 D44 D80
    Date: 2005–05–05

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