New Economics Papers
on Experimental Economics
Issue of 2012‒07‒23
33 papers chosen by

  1. How Can Bill and Melinda Gates Increase Other People’s Donations to Fund Public Goods? - Working Paper 292 By Dean Karlan and John A. List
  2. Rules, Rule-Following, and Cooperation By Erik O. Kimbrough; Alexander Vostroknutov
  3. The Neuroeconomics of Voting: Neural Evidence of Different Sources of Utility in Voting By Ivo Bischoff; Carolin Neuhaus; Peter Trautner; Bernd Weber
  4. Asset Integration and Attitudes to Risk: Theory and Evidence By Steffen Andersen; James C. Cox; Glenn W. Harrison; Morten Lau; E. Elisabet Rutström; Vjollca Sadiraj
  5. Bargaining power does not matter when sharing losses - Experimental evidence of Inequality Aversion in the Nash bargaining game By Eike Kroll; Ralf Morgenstern; Thomas Neumann; Stephan Schosser; Bodo Vogt
  6. On the Norms of Charitable Giving in Islam: A Field Experiment By Lambarraa, Fatima; Riener, Gerhard
  7. The Power of a Bad Example – A Field Experiment in Household Garbage Disposal By Dur, R.; Vollaard, B.A.
  8. Approximate Truth of Perfectness - An Experimental Test - By Siegfried K. Berninghaus; Werner Güth; King King Li
  9. Social Incentives Matter: Evidence from an Online Real Effort Experiment By Tonin, Mirco; Vlassopoulos, Michael
  10. Contract farming and smallholder incentives to produce high quality: experimental evidence from the Vietnamese dairy sector By Saenger, Christoph; Qaim, Matin; Torero, Maximo; Viceisza, Angelino
  11. Do people have a preference for increasing or decreasing pain? An experimental comparison of psychological and economic measures in health related decision making By Eike Kroll; Judith Trarbach; Bodo Vogt
  12. Reducing overreaction to central banks' disclosures:theory and experiment By Romain Baeriswyl; Camille Cornand
  13. Bargaining with Two-Person-Groups - On the Insignificance of the Patient Partner By Oliver Kirchkamp; Ulrike Vollstädt
  14. Backward Induction or Forward Reasoning? - An Experiment of Stochastic Alternating Offer Bargaining - By Siegfried K. Berninghaus; Werner Güth; Stephan Schosser
  15. Experimental auctions, collective induction and choice shift: Willingness-to-pay for rice quality in Senegal By Demont, Matty; Rutsaert, Pieter; Ndour, Maimouna; Verbeke, Wim; Seck, Papa Abdoulaye; Tollens, Eric
  16. Incentives and Social Preferences in a Traditional Labor Contract: Evidence from Rice Plantng Field Experiments in the Philippines By Goto, Jun; Aida, Takeshi; Aoyagi, Keitaro; Sawada, Yasuyuki
  17. On the costs of kindness: An experimental investigation of guilty minds and negative reciprocity By Schubert, Manuel; Graf Lambsdorff, Johann
  18. Myopic Risk Taking in Tournaments By Eriksen, Kristoffer; Kvaløy, Ola
  19. Risk, ambiguity and the adoption of new technologies: experimental evidence from a developing economy By Ross, Nicholas; Santos, Paulo; Capon, Timothy
  20. Trust as a Proxy for the Ability to Produce Local Public Goods: Testing Different Measures By Omar Sene
  21. Nudges at the Dentist By Altmann, Steffen; Traxler, Christian
  22. Deeds rather than omissions: How intended consequences provoke negative reciprocity By Schubert, Manuel
  23. What drives fraud in a credence goods market? - Evidence from a field experiment By Alexander Rasch; Christian Waibel
  24. Gender and Cooperation in Children: Experiments in Colombia and Sweden By Juan-Camilo Cárdenas; Anna Drebber; Emma von Essen; Eva Ranehill
  25. On The Complexity of Eliminating Fuel Subsidy in Indonesia; A Behavioral Approach By Pradiptyo, Rimawan; Sahadewo, Gumilang Aryo
  26. A Reason for Unreason: Returns-Based Beliefs in Game Theory By Velu, Chander; Iyer, Sriya; Gair, Jonathan R.
  27. The local electoral impacts of conditional cash transfers: Evidence from a field experiment. By Julien Labonne
  28. The Impact of Soft Traits and Cognitive Abilities on Life Outcomes: Subjective Wellbeing, Education Achievement, and Rational Choices: a Chocolate Tasting Experiment By Sara Savastano
  29. Using an Experimental Evaluation of Charter Schools to Test Whether Nonexperimental Comparison Group Methods Can Replicate Experimental Impact Estimates. Washington, DC: National Center for Education Evaluation and Regional Assistance, Institute of Education Sciences, U.S. Department of Education By Kenneth Fortson; Natalya Verbitsky-Savitz; Emma Kopa; Philip Gleason
  30. Gender and Experimental Measurement of Producers Risk Attitude Towards Output Market Price and its Effects on Economic Performance By Ndoye Niane, Aifa Fatimata; Burger, Kees
  31. Winning hearts and minds through development ? evidence from a field experiment in Afghanistan By Beath, Andrew; Christia, Fotini; Enikolopov, Ruben
  32. What Is a Solution to a Matrix Game By Martin Shubik
  33. An Experimental Study of Taxpayer Compliance Behavior Under Alternative Reporting Regimes By Bombyk, Matthew

  1. By: Dean Karlan and John A. List
    Abstract: We develop a simple theory which formally describes how charities can resolve the information asymmetry problems faced by small donors by working with large donors to generate quality signals. To test the model, we conducted two large-scale natural field experiments. In the first experiment, a charity focusing on poverty reduction solicited donations from prior donors and either announced a matching grant from the Bill and Melinda Gates Foundation, or made no mention of a match. In the second field experiment, the same charity sent direct mail solicitations to individuals who had not previously donated to the charity, and tested whether naming the Bill and Melinda Gates Foundation as the matching donor was more effective than not identifying the name of the matching donor. The first experiment demonstrates that the matching grant condition generates more and larger donations relative to no match. The second experiment shows that providing a credible quality signal by identifying the matching donor generates even more and larger donations than not naming the matching donor. Importantly, the treatment effects persist long after the matching period, and the quality signal is quite heterogeneous—the Gates’ effect is much larger for prospective donors who had a record of giving to “poverty-oriented” charities. These two pieces of evidence support our model of quality signals as a key mechanism through which matching gifts inspire donors to give.
    Keywords: public goods; charitable fundraising; asymmetric information; matching grant.
    JEL: D12 D71 D82 H41 O12
    Date: 2012–04
  2. By: Erik O. Kimbrough (Simon Fraser Unviersity); Alexander Vostroknutov (Maastricht University)
    Abstract: Rules are thought to persist to the extent that the direct benefits of having them (e.g. reduced transactions costs) exceed the costs of enforcement and of occasional misapplications. We argue that a second crucial role of rules is as screening mechanisms for identifying cooperative types. Thus we underestimate the social value of rules when we consider only their instrumental value in solving a particular problem. We demonstrate experimentally that costly rule-following can be used to screen for conditional cooperators. Subjects participate in a rule-following task in which they may incur costs to follow an arbitrary written rule in an individual choice setting. Without their knowledge, we sort them into groups according to their willingness to follow the rule. These groups then play repeated public goods or trust games. Rule-following groups sustain high public goods contributions over time, but in rule-breaking groups cooperation decays. Rulefollowers also reciprocate more in trust games. However, when individuals are not sorted by type, we observe no differences in the behavior of rule-followers and rule-breakers.
    Keywords: experimental economics, rules, social dilemmas, cooperation
    JEL: C91 C92 D70 D03
    Date: 2012–07
  3. By: Ivo Bischoff (University of Kassel); Carolin Neuhaus (University of Bonn); Peter Trautner (University of Bonn); Bernd Weber (University of Bonn)
    Abstract: Which motives drive the decision of a voter to approve or reject a policy proposal? The Public Choice literature distinguishes between instrumental and expressive voting motives. We investigate the importance of these motives by analysing the patterns of neural activity in different voting situations. We conduct an fMRI-experiment which investigates neural activation at the moment of voting and use the altruism scale proposed by Tankersley et al. (2007) to differentiate between altruists and non-altruists. Non-altruists show neural activation patterns that are consistent with expressive voting motives. Among non-altruists, we also find activation patterns that point at egoistic instrumental motives. Both results are in line with the corresponding Public Choice literature. On the other hand, we find no evidence for expressive voting motives among altruists. Their neural activation pattern is generally much less conclusive with respect to the underlying motives.
    Keywords: Voting behavior, expressive voting, instrumental voting, political decision making, charitable donation, neuroscience, neuroeconomics, neuropolitical, fMRI
    JEL: D72 D87
    Date: 2012
  4. By: Steffen Andersen; James C. Cox; Glenn W. Harrison; Morten Lau; E. Elisabet Rutström; Vjollca Sadiraj
    Abstract: Measures of risk attitudes derived from experiments are often questioned because they are based on small stakes bets and do not account for the extent to which the decision-maker integrates the prizes of the experimental tasks with personal wealth. We exploit the existence of detailed information on individual wealth of experimental subjects in Denmark, and directly estimate risk attitudes and the degree of asset integration consistent with observed behavior. The behavior of the adult Danes in our experiment is consistent with partial asset integration: they behave as if some fraction of personal wealth is combined with experimental prizes in a utility function, and that this combination entails less than perfect substitution. Our subjects do not perfectly asset integrate. The implied risk attitudes from estimating these specifications imply risk premia and certainty equivalents that are a priori plausible under expected utility theory or rank dependent utility models. These are reassuring and constructive solutions to payoff calibration paradoxes. In addition, the rigorous, structural modeling of partial asset integration points to a rich array of neglected questions in risk management and policy evaluation in important field settings.
    Date: 2012–07
  5. By: Eike Kroll (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Ralf Morgenstern (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Thomas Neumann (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Stephan Schosser (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: While experimental research on social dilemmas focuses on the distribution of gains, this paper analyzes social preferences in the case of losses. In this experimental study, participants share a loss in a Nash bargaining game. Instead of monetary losses, we use waiting time as an incentive. We assume that participants prefer less to more waiting time. Our experiment consists of four versions of the Nash bargaining game, which vary in a way that allows a comparison of four classical concepts on negotiations (Nash, Equal Loss, Equal Gain, and Kalai-Smorodinski), and Inequality Aversion. We find an equal split of waiting time for all parameter variations. Therefore, our experimental evidence shows that Inequality Aversion provides a better prediction than do classical concepts for the outcome of a Nash bargaining game involving losses. Furthermore, participants resort to Inequality Aversion at the cost of overall welfare.
    Keywords: bargaining, losses, inequality aversion, experimental economics
    JEL: C7 C9
    Date: 2012–06
  6. By: Lambarraa, Fatima; Riener, Gerhard
    Abstract: Charitable giving is one of the major obligations Islam and a strong Muslim norm endorses giving to the needy, but discourages public displays of giving. This norm is puzzling in light of previous evidence, suggesting that making donations public often increases giving. We report the results two field experiments with 534 and 186 participants at Moroccan educational institutions (among them two religious schools) to assess the effects this moral prescription on actual giving levels in anonymous and public settings. Subjects who participated in a paid study were given the option to donate from their payment to a local orphanage, under treatments that varied the publicity of the donation and the salience of Islamic values. In the salient Islamic treatment, anonymity of donations significantly increased donation incidence from 59% to 77% percent as well as average donations for religious subjects from 8.90 to 13.00 Dh. This findings stand in stark contrast to most previous findings in the charitable giving literature and suggest to rethink fundraising strategies in Muslim populations.
    Keywords: Charitable giving, Islam, Social pressure, Priming, Religion, Norms, Field experiment, Institutional and Behavioral Economics, H40, C93, D01, Z12,
    Date: 2012
  7. By: Dur, R.; Vollaard, B.A. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: Field-experimental studies have shown that people litter more in more littered environments.Inspired by these findings, many cities around the world have adopted policies to quickly remove litter. While such policies may avoid that people follow the bad example of litterers, they may also invite free-riding on public cleaning services. This paper reports the results of a natural field experiment where, in a randomly assigned part of a residential area, the frequency of cleaning was reduced from daily to twice a week during a three-month period. Using high-frequency data on litter at treated and control locations before, during, and after the experiment, we find strong evidence that litter begets litter. However, we also find evidence that some people start to clean up after themselves when public cleaning services are diminished.
    Keywords: littering;public services;free-riding;field experiment.
    JEL: C93 H40 K42
    Date: 2012
  8. By: Siegfried K. Berninghaus; Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); King King Li
    Abstract: "Approximate truth" refers to the principle that border cases should be analyzed by solving generic cases and solving border cases as limits of generic ones (Brennan et al., 2008). Our study experimentally explores whether this conceptual principle is also behaviorally appealing. To do so, we focus on perfectness (Selten, 1975) and use his example game with (no) multiplicity of (perfect) equilibria. Distinguishing three uniform perturbation levels, we check for monotonicity (all players react monotonically to the perturbation level) and then explore the behavioral relevance of "approximate truth."
    Keywords: experimental games, trembling hand perfectness, perturbed strategies
    JEL: C70 C72 C91
    Date: 2012–07–11
  9. By: Tonin, Mirco (Associazione Italiana per la Cultura della Cooperazione e del Non Profit); Vlassopoulos, Michael (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)
    Abstract: Contributing to a social cause can be an important driver for workers in the public and non-profit sector as well as in firms that engage in Corporate Social Responsibility activities. This paper compares the effectiveness of social incentives to financial incentives using an online real effort experiment. We find that social incentives lead to a 20% rise in productivity, regardless of their form (lump sum or related to performance) or strength. When subjects can choose the mix of incentives half sacrifice some of their private compensation to increase social compensation, with women more likely than men. Furthermore, social incentives do not attract less productive subjects, nor subjects that respond more to exogenously imposed social incentives. Our calculations suggest that a dollar spent on social incentives is equivalent to increasing private compensation by at least half a dollar.
    Keywords: private incentives; social incentives; sorting; prosocial behavior; real effort experiment; corporate social responsibility; gender
    JEL: D64 J24 J32 L30 M14 M52
    Date: 2012–07–11
  10. By: Saenger, Christoph; Qaim, Matin; Torero, Maximo; Viceisza, Angelino
    Abstract: In emerging markets for high-value food products in developing countries, processing companies search for efficient ways to source raw material of consistent quality. One widely embraced approach is contract farming. But relatively little is known about the appropriate design of contracts, especially in a small farm context. We use the example of the Vietnamese dairy sector to analyze the effectiveness of existing contracts between a processor and smallholder farmers in terms of incentivizing the production of high quality milk. A framed field experiment is conducted to evaluate the impact of two incentive instruments, a price penalty for low quality and a bonus for consistent high quality milk, on farmers’ investment in quality-improving inputs. Statistical analysis suggests that the penalty drives farmers into higher input use, resulting in better output quality. The bonus payment generates even higher quality milk. We also find that input choice levels depend on farmers’ socio-economic characteristics such as wealth, while individual risk preferences seem to be less important. Implications for the design of contracts with smallholders are discussed.
    Keywords: Contract farming, incentives, risk, experimental economics, framed field experiment, dairy, Vietnam, developing countries, Agribusiness, Institutional and Behavioral Economics, International Development, Risk and Uncertainty,
    Date: 2012
  11. By: Eike Kroll (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Judith Trarbach (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: This paper investigates preferences for different health profiles, especially sequences of increasing and decreasing pain. We test conflicting predictions in terms of preferences over two painful sequences. The QALY concept relevant for the determination of different levels of health-related quality of life implies indifference, whereas behavioral theories find preferences related to ordering, following the peak-end-rule. Using an experimental design with real consequences we generate decisions about painful sequences induced by the cold pressor test. The results are compared with hypothetical choice data elicited using standard methods. We find that hypothetical methods reveal decisions in line with the peak-end-rule. However when it comes to real consequences of their decisions, subjects are on average not willing to pay for that preference.
    Keywords: pain, peak-end-rule, willingness-to-pay
    JEL: D8 C9
    Date: 2012–06
  12. By: Romain Baeriswyl; Camille Cornand
    Abstract: Financial markets are known for overreacting to public information. Central banks can reduce this overreaction either by disclosing information to a fraction of market participants only (partial publicity) or by disclosing information to all participants but with ambiguity (partial transparency). We show that, in theory, both communication strategies are strictly equivalent in the sense that overreaction can be indifferently mitigated by reducing the degree of publicity or by reducing the degree of transparency. We run a laboratory experiment to test whether theoretical predictions hold in a game played by human beings. In line with theory, the experiment does not allow the formulation of a clear preference in favor of either communication strategy. This paper then discusses the opportunity for central banks to choose between partial transparency and partial publicity to control market reaction to their disclosures.
    Keywords: heterogeneous information, public information, overreaction, transparency,coordination, experiment
    JEL: C92 D82 D84 E58
    Date: 2012
  13. By: Oliver Kirchkamp (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Ulrike Vollstädt (Jena Graduate School "Human Behaviour in Social and Economic Change", University of Jena)
    Abstract: Although many real bargaining situations involve more than two people, much of the theoretical and experimental research concentrates on the two player situation. We study the simplest possible extension: four people (two two-person groups) of different patience bargain with each other. Theoretically, only the more patient member of each group should be relevant for the outcome. The less patient members would agree to any outcome and are, hence, irrelevant. We find, however, that the impact of the patient member can be quite small.
    Keywords: bargaining experiment, heterogeneous group members
    JEL: C78 D74
    Date: 2012–07–16
  14. By: Siegfried K. Berninghaus (Karlsruhe Institute of Technology, Institute for Economic Theory and Statistics); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Stephan Schosser (University of Magdeburg, Chair of Empirical Economics)
    Abstract: Bounded rationality questions backward induction, which however, does not exclude such reasoning when anticipation is easy. In our stochastic (alternating offer) bargaining experiment, there is a certain first-period pie and a known finite deadline. What is uncertain (except for the final period) is whether there is a further period. Whereas backward induction requires information about all later pie sizes and probabilities, forward reasoning is expected to consider only the immediate prospects. Rather than relying only on decision data, we try to assess the cognitive approach such as forward reasoning of backward induction by control of information retrieval. We find that participants who begin with the shortest games before playing possibly longer games, initially resort to backward induction before switching to forward-looking behavior.
    Keywords: backward induction, forward reasoning, bargaining
    JEL: C70 C72 C91
    Date: 2012–07–12
  15. By: Demont, Matty; Rutsaert, Pieter; Ndour, Maimouna; Verbeke, Wim; Seck, Papa Abdoulaye; Tollens, Eric
    Abstract: We propose a collective induction treatment as an aggregator of information and preferences, which enables testing whether consumer preferences for food quality elicited through experimental auctions are robust to aggregation. We develop a two-stage estimation method based on social judgment scheme theory to identify the determinants of social influence in collective induction. Our method is tested in a market experiment aiming to assess consumers’ willingness-to-pay for rice quality in Senegal. No significant choice shift was observed after collective induction which suggests that consumer preferences for rice quality are robust to aggregation. Almost three quarters of social influence captured by the model and the variables was explained by social status, market expertise and information.
    Keywords: Vickrey auctions, social decision schemes, group decision-making, word-of mouth communication, Sharpe style weights, Demand and Price Analysis, Research Methods/ Statistical Methods, C24, C91, C92, D12, D71,
    Date: 2012
  16. By: Goto, Jun; Aida, Takeshi; Aoyagi, Keitaro; Sawada, Yasuyuki
    Keywords: Labor and Human Capital,
    Date: 2012
  17. By: Schubert, Manuel; Graf Lambsdorff, Johann
    Abstract: Psychology has inspired economics to recognize intentions in addition to outcomes as being relevant for utility and behavior. Reciprocal behavior, in particular, has been related to the kindness of chosen actions and how kindness can be derived from the benefits obtained in unchosen alternatives. This study shows that a richer understanding of kindness is required. We carry out ultimatum games with a reduced space of strategies and observe that subjects refrain from negative reciprocity (rejecting proposals) if an unchosen alternative was costly to the proposer. Second, we find proposers to anticipate this behavior. Not only the benefits are relevant for assessments of kindness, the costs of kindness matter as well. --
    Keywords: intentions,reciprocity,fairness
    JEL: C70 C91 D63
    Date: 2012
  18. By: Eriksen, Kristoffer (UiS); Kvaløy, Ola (UiS)
    Abstract: There is a common notion that incentive schemes in the financial industry trigger myopia and risk-taking. In some sense this contrasts with the concept of myopic loss aversion (MLA), which implies that myopia mitigates risk-taking. A number of experimental studies support the MLA-hypothesis by showing that people take less risk the more frequently their investments are evaluated. In this paper we show experimentally that if subjects are exposed to tournament incentives, they take more risk the more frequently investments are evaluated.
    Keywords: tournaments
    JEL: A10
    Date: 2012–07–17
  19. By: Ross, Nicholas; Santos, Paulo; Capon, Timothy
    Abstract: The slow adoption of innovations in less developed countries has long been a puzzle, given the high expected returns. This paper investigates the role of ambiguity-aversion as a fundamental behavioral determinant of technology adoption, motivated by the fact that, almost by denition, farmers have less certain information about the outcomes of new technologies compared with traditional technologies. Using primary data from field experiments used to measure behavioral parameters such as risk and ambiguity aversion, we find that farmers' aversion to ambiguity (but not risk aversion) limits the adoption of new technologies, even when expected profits are quite high. Interventions that reduce uncertainty (in place of interventions that reduce risk) seem a promising way of speeding up the adoption of innovations.
    Keywords: International Development, Research and Development/Tech Change/Emerging Technologies, Risk and Uncertainty,
    Date: 2012
  20. By: Omar Sene (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne)
    Abstract: The ability to produce local public goods and services such as sharing savings, risk, insurance, sanitation and educational services, is a key fator for development. This ability, however, varies greatly across communities (Ostrom 1990 ; Khwaja 2009). Considering that this ability depends critically on members' willingness to act collectively, this paper investigate whether the level of trust among people measured in different ways can predict the amount of public good produced. I find that (i) trust, as measured by survey questions, has poor predictive power, while (ii) the results from our version of Trust Game are much better predictors of local public-good production.
    Keywords: Trust, collective action, provision of local public goods, trust game.
    Date: 2012–06
  21. By: Altmann, Steffen (IZA); Traxler, Christian (University of Marburg)
    Abstract: We implement a randomized field experiment to study the impact of reminders on dental health prevention. Patients who are due for a check-up receive no reminder, a neutral reminder postcard, or reminders including additional information on the benefits of prevention. Our results document a strong impact of reminders. Within one month after receiving a reminder, the fraction of patients who make a check-up appointment more than doubles. The effect declines slightly over time, but remains economically and statistically significant. Including additional information in the reminders does not increase response rates. In fact, the neutral reminder has the strongest impact for the overall population as well as for important subgroups of patients. Finally, we document that being exposed to reminders repeatedly does neither strengthen nor weaken their effectiveness.
    Keywords: field experiment, reminders, nudges, memory limitations, prevention, dental health, framing
    JEL: D03 I11 C93
    Date: 2012–07
  22. By: Schubert, Manuel
    Abstract: Intention-based models of reciprocity argue that people assess kindness by measuring the intended consequences of actual behavior (deeds) against foregone payoffs resulting from unchosen alternatives (omissions). While the effects of omissions have been intensively studied in recent years, less has been done with respect to the impact of deeds on reciprocation. I employ a novel game that alters the intended consequences behind actual behavior at constant levels of unchosen alternatives and realized payoffs. Aggregate results suggest that intended consequences only weakly matter for negative reciprocity. I find men to abstain from retaliation when others intend to mildly harm them. Women, however, seem to be largely invariant to intended consequences of actual behavior. --
    Keywords: intentions,reciprocity,kindness,gender
    JEL: D63 C78 C91
    Date: 2012
  23. By: Alexander Rasch (University of Cologne); Christian Waibel (CGS, University of Cologne)
    Abstract: This paper investigates the impact of four key economic variables on an expert firm's incentive to defraud its customers in a credence goods market: the level of competition, the expert firm's financial situation, its competence, and its reputational concerns. We use and complement the dataset of a nationwide field experiment conducted by the German Automobile Association that regularly checks the reliability of garages in Germany. We find that more intense competition and high competence lower firms' incentive to overcharge. A low concern for reputation and a critical financial situation increase the incentive to overcharge.
    Keywords: Asymmetric information, Auto repair market, Credence goods, Expert, Fraud, Overcharging
    JEL: D82 L15
    Date: 2012–06
  24. By: Juan-Camilo Cárdenas; Anna Drebber; Emma von Essen; Eva Ranehill
    Abstract: This paper compares cooperation among Columbian and Swedish children aged 9-12. We illustrate the dynamics of the prisoner’s dilemma in a new task that is easily understood by children and performed during a physical education class. We find some evidence that children cooperate more in Sweden than in Colombia. Girls in Colombia are less cooperative than boys, whereas our results indicate the opposite gender gap in Sweden. On average, children are more cooperative with boys than with girls.
    Date: 2012–07–01
  25. By: Pradiptyo, Rimawan; Sahadewo, Gumilang Aryo
    Abstract: People’s attachment to a subsidy creates difficulties for the government to phase out, and eventually eliminate, the subsidy. Elimination of fuel subsidy scheme in Indonesia is a perfect example of such occurrence. The subsidy has been implementing to commodity as opposed to households, thus individuals may not necessarily realized that they have been enjoying the subsidy when they buy fuel. In this case people may feel as if they are endowed by the values from the provision of the policy. The elimination of the subsidy consequently may be perceived as a loss - as opposed to a foregone gain. This study aims to obtain the most acceptable exit strategy to eliminate the subsidy from the perspective of households by conducting a laboratory-based survey. The alternative exit strategies include methods of elimination of the subsidy and of reallocation of resources saved from eliminating the subsidy. The policy options have been derived using insight from behavioral economics ranging from endowment effect, status quo bias, to present biasness. The survey includes 335 subjects, who come from four different backgrounds: 1) households with no motor vehicle; 2) households with only motorcycle(s); (3) households with one car and; 4) households with one luxurious car or more than one car. Each subject faces 55 paired-wise policy alternatives and the method proposed by Dunn-Rankin (1983) has been used to derive the ordering of preferences. The result shows that gradual elimination of fuel subsidy and reallocation to earmarked programs were the most acceptable policy elements of the exit strategy. The survey, indirectly, showed that subjects’ valuation of losses is greater for direct elimination strategies than that of the equivalent gradual elimination strategies. The results also show that respondents chose “to pay” later at a smaller amount than “to pay” immediately of the equivalent total value. The reallocation of resources saved to earmarked programs is more acceptable than the reallocation to non-earmarked programs. In particular, respondents opted for a more immediate compensation from the elimination or reduction of the subsidy.
    Keywords: Fuel subsidy; experimental economics; laboratory-based survey; paired comparison; preference relation; reallocation of resources
    JEL: D03 D12 Q48 C91
    Date: 2012–07–13
  26. By: Velu, Chander (University of Cambridge); Iyer, Sriya (University of Cambridge); Gair, Jonathan R. (University of Cambridge)
    Abstract: Players cooperate in experiments more than game theory would predict. In order to explain this, we introduce the 'returns-based beliefs' approach: the expected returns of a particular strategy in proportion to the total expected returns of all strategies. Using a decision analytic solution concept, Luce's (1959) probabilistic choice model, and 'hyperpriors' for ambiguity in players' cooperability, our approach explains empirical observations in classic games such as the Prisoner's Dilemma. Testing the closeness of fit of our model on Selten and Chmura (2008) data for completely mixed 2x2 games shows that with loss aversion, returns-based beliefs explain the data better than other equilibrium concepts.
    Keywords: subjective probabilities, decision making, cooperation
    JEL: D01 D03
    Date: 2012–07
  27. By: Julien Labonne
    Abstract: I develop and test two competing models assessing the impacts of targeted government transfers on a local incumbent’s electoral performance. I take advantage of the randomized roll-out of a large-scale Conditional Cash Transfer program in the Philippines, which offers an ideal setting to test the models. Although the program was usually implemented in all villages in a municipality, a subset of beneficiary municipalities were randomly selected to receive the program in a randomly selected subset of villages. I find that, in a competitive political environment, incumbent vote share is 26 percentage points higher in municipalities in which the program was implemented in all villages than in municipalities in which the program was implemented in half of the villages. The program had no impact in municipalities with low levels of political competition. Further, within municipalities, there is evidence consistent with the argument that incumbents compensated households in control villages by redistributing their own budget there. Results suggest that anti-poverty programs might have nefarious long-term consequences by preventing replacements of local incumbents.
    Keywords: Elections, Conditional cash transfers, Decentralization
    JEL: D72
    Date: 2012
  28. By: Sara Savastano (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: Linking to a growing literature in behavioral economics, this study combines neuroscience, psychology, and behavioral economics to empirically analyze the extent to which academic achievement, the relative weight of rationality vs. fairness in decision-making, and life satisfaction are affected by cognitive ability, persistent personality traits, and short-term stimuli based on psychological priming techniques. Prior to undertaking a course exam and playing the role of the respondent in an ultimatum game, a group of Masters and PhD students were stimulated either emotionally (via chocolate tasting) or rationally (via mathematical problem solving). Results show that, in addition to rational skills, short term stimuli and persistent personality traits have a significant impact on academic performance. They also influence the extent to which decisions are affected by notions of rationality and fairness and individuals’ subjective satisfaction with life. Given the economic importance of the associated outcomes, this opens up an important research agenda.
    Keywords: Neuroeconomics, Psychology and Behavioral Economics, Satisfaction with life, Rational Choices, Consumer Theory
    JEL: C91 D01 D87 D60 I20
    Date: 2012–07–17
  29. By: Kenneth Fortson; Natalya Verbitsky-Savitz; Emma Kopa; Philip Gleason
    Abstract: Using data from Mathematica's experimental evaluation of charter schools, this methodological study examines the validity of four different comparison group approaches to test whether these designs can replicate findings from a well-implemented random assignment study.
    Keywords: within-study comparison, randomized controlled trial, quasi-experimental, nonexperimental, propensity score matching, nonexperimental design validity
    JEL: I
    Date: 2012–04–30
  30. By: Ndoye Niane, Aifa Fatimata; Burger, Kees
    Abstract: Agricultural production is typically a risky business. Farm households have to tackle several risks. So, farm households’ risk attitude is an important issue connected with decision making and greatly affects their economic performance. Particularly in Senegal, for horticultural households, output market price is one of the foremost risks. Moreover, within the household, husband and wives may behave differently towards risk. This research provides theoretical and empirical evidence of measures and effects of risk attitude on economic performance and on choice of inputs across gender. More precisely, based on an experimental game implemented in of Senegal, this chapter investigates the gender dimension of risk attitude and the causal relationship between risk attitude and allocative inefficiency of choice of inputs. The results show that on average men and women producers display absolute risk aversion towards output market price, and that women are as risk averse as men. As expected, and in line with the theoretical model, the empirical evidence shows that allocative inefficiency in the use of inputs increases with risk aversion. We identify recommendations for policy decision makers in terms of strategies which may help to dampen men and women producers’ risk aversion towards output market price and repercussions for efficiency.
    Keywords: risk attitude, output market price, allocative inefficiency, inputs, horticultural household, gender, Agricultural and Food Policy, Farm Management,
    Date: 2012
  31. By: Beath, Andrew; Christia, Fotini; Enikolopov, Ruben
    Abstract: In areas afflicted by civil conflict, development projects can potentially serve an important counterinsurgency function by redressing grievances of marginalized groups and reducing violence. Using a large-scale randomized field experiment in Afghanistan, this paper explores whether the inclusion of villages in the country's largest development program alters perceptions of well-being, attitudes toward government, and violence in surrounding areas. The results indicate that the program generally has a positive effect on all three measures, but has no effects in areas with high levels of initial violence. These findings demonstrate that development programs can buttress government support and limit the onset of insurgencies in relatively secure areas, but that their effectiveness is more constrained in areas where insurgents are already active.
    Keywords: Post Conflict Reconstruction,Housing&Human Habitats,Labor Policies,Subnational Economic Development,E-Business
    Date: 2012–07–01
  32. By: Martin Shubik (Cowles Foundation, Yale University)
    Abstract: These notes are provided to describe many of the problems encountered concerning both structure and behavior in specifying what is meant by the solution to a game of strategy in matrix or strategic form. In the short term in particular, it is often reasonable for the individual to accept as given, both the context in which decisions are being made and the formal structure of the rules of the game. A solution is usually considered as a complete set of equations of motion that when applied to the game at hand selects a final outcome. There are many different theories and conjectures about how games of strategy are, or should be played. Several of them are noted below. They are especially relevant to the experimental gaming facility noted in the companion paper.
    Keywords: Matrix games, Solution concepts, Experimental gaming
    JEL: C7 C9
    Date: 2012–07
  33. By: Bombyk, Matthew
    Abstract: Underreporting of income is a costly problem for the government and for those people who do pay their taxes, due to the necessity of higher tax burdens to sustain a given amount of revenue. An extensive research report published by the IRS this year estimates that in the United States in 2006 the “tax gap” between paid taxes and legally owed taxes was $450 billion, which means 16.9 percent of total tax liabilities were evaded that year (Black et al., 2012). The IRS recovered $65 billion from late payments and audits, but that still left 14.5 percent noncompliance. Breaking the tax gap down into finer categories, the IRS finds that the vast majority (84 percent) comes from underreporting of income, most of that (62.5 percent) comes from individual income taxes, and most of that (52 percent) is small business proprietor’s income. This totals to 27 percent of noncompliance due to underreporting of individual proprietor income. It is estimated that 57 percent of business income is not reported (Black et al., 2012). Wages make up a small fraction of underreporting, mostly due to the fact that firms must report employee income directly to the IRS, and withholding is common, so a relatively disinterested third party makes the decision of how much income is reported (Slemrod, 2008). Slemrod emphasizes the importance of enforcement in compliance behavior, citing the fact that income subject to withholding and substantial information reporting (wages) has a 1 percent noncompliance rate, compared to 56 percent noncompliance for income with little or no information reporting requirements. Given the difficulty of identifying cheaters and the cost of increasing the rate of auditing, a better understanding of the determinants of noncompliance is needed 1 to reduce the magnitude of tax cheating. To address a part of the tax evasion quandary, Kalambokidis et al. (2012) conducted a laboratory experiment1 which was designed to examine the feasibility of using the choice between a high-burden,2 low-transparency and a low-burden, high-transparency tax regime, as a mechanism to separate out those who have higher and lower propensities to cheat when reporting their income. The results are the subject of this paper.
    Keywords: Financial Economics, Institutional and Behavioral Economics, Public Economics,
    Date: 2012–07

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.