nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒03‒08
six papers chosen by
Daniel Houser
George Mason University

  1. An experimental test of the deterrence hypothesis By Hörisch, Hannah; Strassmair, Christina
  2. Presentation Effects in Cross-Cultural Experiments - An Experimental Framework for Comparisons By Sebastian J. Goerg; Gari Walkowitz
  3. Buying up the block: An experimental investigation of capturing economic rents through sequential negotiations By Gautam Goswami; Thomas H. Noe; Jun Wang
  4. Managerial Compensation in a Two-Level Gift-Exchange Experiment By Nils Hesse; Fernanda Rivas
  5. The Impact of (In)Equality of Opportunities on Wealth Distribution : Evidence from Ultimatum Games By Grimalda, Gianluca; Kar, Anirban; Proto, Eugenio
  6. Product market efficiency: The bright side of myopic, uninformed, and passive external finance By Thomas H. Noe; Michael J. Rebello; Thomas A. Rietz

  1. By: Hörisch, Hannah; Strassmair, Christina
    Abstract: Crime has to be punished, but does punishment reduce crime? We conduct a neutrally framed laboratory experiment to test the deterrence hypothesis, namely that crime is weakly decreasing in deterrent incentives, i.e. severity and probability of punishment. In our experiment, subjects can steal from another participant's payoff. Deterrent incentives vary across and within sessions. The across subject analysis clearly rejects the deterrence hypothesis: except for very high levels of incentives, subjects steal more the stronger the incentives. We observe two types of subjects: selfish subjects who act according to the deterrence hypothesis and fair-minded subjects for whom deterrent incentives backfire.
    Keywords: deterrence; law and economics; incentives; crowding out; experiment
    JEL: K42 C91 D63
    Date: 2008–02–26
  2. By: Sebastian J. Goerg; Gari Walkowitz
    Abstract: This paper investigates the impact of game presentation dependent on   ethnical affiliation. Two games representing the same logical and strategical problem are   introduced. Presented games are continuous prisoner’s dilemma games where decision makers   can choose an individual level of cooperation from a given range of possible actions. In the   first condition, a positive transfer creates a positive externality for the opposite player. In   the second condition, this externality is negative. Accomplishing a cross-cultural experimental   study involving subjects from the West Bank and Jerusalem (Israel) we test for a strategic   presentation bias applying these two conditions. Sub jects in the West Bank show a substantially   higher cooperation level in the positive externality treatment. In Jerusalem no   presentation effect is observed. Critically discussing our findings, we argue that a cross-cultural   comparison leads to only partially meaningful and opposed results if only one treatment   condition is evaluated. We therefore suggest a complementary application and consideration of   different presentations of identical decision problems within cross-cultural research.
    Keywords: Cooperation, presentation of decision problems, framing, methodology, cross-cultural research
    JEL: A13 C72 C91 F51 Z13
  3. By: Gautam Goswami; Thomas H. Noe; Jun Wang
    Abstract: This paper develops and experimentally implements a simple multi-negotiation bargaining game, in which one agent, called the “developer,†must reach agreements with a series of other agents, called “landowners,†in order to implement a valueincreasing project. The game has a unique subgame perfect Nash equilibrium under which the surplus from the project is split between the landowner and developer without any dissipation of value. In the actual experiments, however, on average almost half of the value of the project was dissipated. The costs of dissipation fell disproportionately on the developer, who was able to capture less than 5% of the value generated by the project. The results of this experiment call into question the ability of private negotiations between a large number of parties, even in a world without explicit contracting costs, to induce Pareto-optimal allocations of property rights.
    Keywords: multi-negotiation bargaining game, experiment, sequential negotiations
    Date: 2008
  4. By: Nils Hesse (Albert-Ludwigs Universität Freiburg); Fernanda Rivas (Universidad Carlos III de Madrid)
    Abstract: In times of increasing international competition firms demand concessions from employees to carry out necessary restructuring measures, which can partly be resisted by workers, whose behavior at work can not be fully contracted upon. At the same time, management compensations are perceived as too high by the majority of the population. In our paper we explore to what extent these two observations are related. In a two-level gift-exchange experiment it is asked if the managerial compensation influences workers' effort decisions and workers' willingness to accept wage cuts. We compare sessions in which the managerial compensation is public information with private information sessions. Our data suggests that the managerial compensations in public wage sessions are signiffcantly negatively correlated with the workers' effort choices -in particular after wage cuts. The profit-maximizing strategy for the firm is to compress wages when the managerial compensation is public information.
    Keywords: managerial compensation, social preferences, laboratory experiment, gift-exchange, e¤ort, downsizing
    JEL: C92 J33 M12 M52
    Date: 2007–12
  5. By: Grimalda, Gianluca (Department of Economics, University of Warwick); Kar, Anirban (Department of Economics, University of Warwick); Proto, Eugenio (Department of Economics, University of Warwick)
    Abstract: We study the impact on payoff distribution of varying the probability (opportunity) that a player has of becoming the proposer in an ultimatum game (UG). Subjects' assignment to roles within the UG was randomised before the interactions. Subjects played 20 rounds anonymously and with random rematching at each round. We compare the outcomes of four different settings that differed according to the distribution of opportunities between the pair of players in each round, and across the whole 20 rounds. The results clearly point to the existence of a discontinuity in the origin of the opportunity spectrum.Allowing a player a 1% probability of becoming the proposer brings about significantly lower offers and higher acceptance rates with respect to the benchmark case where a player has no such a chance. As such probability is raised to 20% and 50%, this same trend continues, but the effects are generally no longer significant with respect to the 1% setting. In one case the monotonic pattern is violated. We conclude that subjects in our experiment appear to be motivated mostly by the purely symbolic aspect of opportunity rather than by the actual fairness in the allocation of opportunities.
    Date: 2008
  6. By: Thomas H. Noe; Michael J. Rebello; Thomas A. Rietz
    Abstract: We show that introducing an external capital market with information asymmetry into a product market model reduces opportunistic substitution of sub-standard goods and encourages producers to concentrate on long-run reputation building. We test this result with a laboratory experiment. We find that, when the problem of product market opportunism is moderate, i.e., reputation formation equilibria exist when firms raise external funds but not when they rely on internal funds, external financing results in much higher (roughly double) economic surplus. This external finance premium results primarily from higher levels of output caused by the reduced likelihood or market failure.
    Keywords: adverse selection, financing, reputation
    JEL: C91 D82 G31 G32 L15
    Date: 2008

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