New Economics Papers
on Experimental Economics
Issue of 2013‒03‒30
twelve papers chosen by

  1. Empathy, Sympathy, and Tax Compliance By Roberta Calvet; James Alm
  2. Inequality and Relative Ability Beliefs By Jeffrey V. Butler
  3. Testing for Fictive Learning in Decision-Making under Uncertainty By Oliver Bunn; Caterina Calsamiglia; Donald J. Brown
  4. Experimental Research On Asset Pricing By Noussair, C.N.; Tucker, S.
  5. Relative Performance of Liability Rules: Experimental Evidence By Vera Angelova; Olivier Armantier; Giuseppe Attanasi; Yolande Hiriart
  6. Democracy and Regulation: The Effects of Electoral Competition on Infrastructure Investments By Arthur Schram; Aljaz Ule
  7. Inefficient Hiring in Entry-Level Labor Markets By Amanda Pallais
  8. "Improving Early-Grade Literacy in East Africa:Experimental Evidence from Kenya and Uganda" By ADRIENNE M. LUCAS
  9. Expanding the Theory of Tax Compliance from Individual to Group Motivations By James Alm
  10. Investigation of the Effects of Emission Market Design on the Market-Based Compliance Mechanism of the California Cap on Greenhouse Gas Emissions By Charles A. Holt; William M. Shobe
  11. Time preference and health behaviour: A review By Lawless, Lydia J.R.; Nayga, Rodolfo; Drichoutis, Andreas
  12. The Articulation Effect of Government Policy: Health Insurance Mandates Versus Taxes By Keith Marzilli Ericson; Judd B. Kessler

  1. By: Roberta Calvet (Department of Business Management and Communication, Lesley University); James Alm (Department of Economics, Tulane University)
    Abstract: This paper examines the effect of "empathy" and "sympathy" on tax compliance. We run a series of laboratory experiments in which we observe the subjects' decisions in a series of one-shot tax compliance games presented at once and with no immediate feedback. Importantly, we employ methods to identify subjects' sympathy, such as the Davis Empathic Concern Scale and questions about frequency of prosocial behaviors; we also use priming in order to promote subjects' empathy. Our results suggest that the presence of sympathy in most cases encourages more tax compliance. Our results also suggest that priming to elicit empathy also has a positive impact on tax compliance. These results support the inclusion of noneconomic factors in the analysis of tax compliance behavior.
    Keywords: Tax evasion; Emotions; Morality; Identity; Behavioral economics; Experimental economics
    JEL: H26 C91
    Date: 2013–02
  2. By: Jeffrey V. Butler (EIEF)
    Abstract: In this study I present experimental evidence of a novel channel yielding inequality persistence. In an initial experiment, results suggest that individuals respond to salient inequality by adjusting their performance beliefs to justify the inequality. Subsequent experiments reveal: i) that it is beliefs about relative ability, an ostensibly stable trait, rather than effort provision that respond to inequality; and that ii) unequal pay in an initial task affects willingness to compete on a subsequent task for male participants. Taken together, these patterns may cause inequality to become self-perpetuating. I conclude by discussing some implications of these findings.
    Date: 2013
  3. By: Oliver Bunn (Dept. of Economics, Yale University); Caterina Calsamiglia; Donald J. Brown (Dept. of Economics, Yale University)
    Abstract: We conduct two experiments where subjects make a sequence of binary choices between risky and ambiguous binary lotteries. Risky lotteries are defined as lotteries where the relative frequencies of outcomes are known. Ambiguous lotteries are lotteries where the relative frequencies of outcomes are not known or may not exist. The trials in each experiment are divided into three phases: pre-treatment, treatment and post-treatment. The trials in the pre-treatment and post-treatment phases are the same. As such, the trials before and after the treatment phase are dependent, clustered matched-pairs, that we analyze with the alternating logistic regression (ALR) package in SAS. In both experiments, we reveal to each subject the outcomes of her actual and counterfactual choices in the treatment phase. The treatments differ in the complexity of the random process used to generate the relative frequencies of the payoffs of the ambiguous lotteries. In the first experiment, the probabilities can be inferred from the converging sample averages of the observed actual and counterfactual outcomes of the ambiguous lotteries. In the second experiment the sample averages do not converge. If we define fictive learning in an experiment as statistically significant changes in the responses of subjects before and after the treatment phase of an experiment, then we expect fictive learning in the first experiment, but no fictive learning in the second experiment. The surprising finding in this paper is the presence of fictive learning in the second experiment. We attribute this counterintuitive result to apophenia: "seeing meaningful patterns in meaningless or random data." A refinement of this result is the inference from a subsequent Chi-squared test, that the effects of fictive learning in the first experiment are significantly different from the effects of fictive learning in the second experiment.
    Keywords: Uncertainty, Counterfactual outcomes, Apophenia
    JEL: C23 C35 C91 D03
    Date: 2013–03
  4. By: Noussair, C.N.; Tucker, S. (Tilburg University, Center for Economic Research)
    Abstract: Abstract This paper selectively surveys some of the more prominent laboratory experimental studies on asset market behavior. The strands of literature considered are market microstructure, pari-mutuel betting markets, characteristics of participants, the effect of information release, and studies of the CAPM pricing model.
    Keywords: Survey;Experiments;Asset Pricing
    JEL: C9 G10
    Date: 2013
  5. By: Vera Angelova (Technical University Berlin); Olivier Armantier (Federal Reserve Bank of New York); Giuseppe Attanasi (University of Strasbourg and Toulouse School of Economics); Yolande Hiriart (CRESE, Université de Franche-comté)
    Abstract: We compare the performance of liability rules for managing environmental disasters when third parties are harmed and cannot always be compensated. A firm can invest in safety to reduce the likelihood of accidents. The firm's investment is unobservable to authorities. The presence of externalities and asymmetric information call for public intervention in order to define rules aimed at increasing prevention. We determine the investments in safety under No Liability, Strict Liability and Negligence rules, and compare these to the first best. Additionally, we investigate how the (dis)ability of the firm to fully cover potential damage affects the firm's behavior. An experiment tests the theoretical predictions. In line with theory, Strict Liability and Negligence are equally effective; both perform better than No Liability; investment in safety is not sensitive to the ability of the firm to compensate potential victims. In contrast with theory, prevention rates absent liability are much higher, and liability is much less effective, than predicted.
    Keywords: Risk Regulation, Liability Rules, Incentives, Insolvency, Experiment
    JEL: D82 K13 K32 Q58
    Date: 2013–03
  6. By: Arthur Schram (; Aljaz Ule (
    Abstract: This paper investigates infrastructure investment in markets where regulation is subject to varying degrees of manipulation by elected politicians. Based on a model of price regulation in a market with increasing demand and long-term returns on investment we construct a multi-period game between a service provider, consumers with voting rights and elected decision makers. In each period the consumers elect a decision maker who may then regulate the price for service provision. Before an election the service provider chooses whether to increase its capacity. Investment is irreversible and profitable only with a sufficiently high price. We derive the subgame perfect equilibrium for this game and investigate the price and investment dynamics through an experiment with human subjects. The experimental results show that service providers invest when decision-makers' interests align with their own, though prices may rise inefficiently high when the regulatory framework is made independent of future political manipulation. Independency of regulation thus decreases efficiency and consumer surplus. In contrast, when decision-makers' interests do not align with service providers' we find efficiency only when regulation can be made independent from electoral dynamics.
    Keywords: Infrastructural investment; regulation; electoral competition; laboratory experiment
    JEL: L5 L43 D92 C9
    Date: 2013–03–18
  7. By: Amanda Pallais
    Abstract: Hiring inexperienced workers generates information about their abilities. If this information is public, workers obtain its benefits. If workers cannot compensate firms for hiring them, firms will hire too few inexperienced workers. I determine the effects of hiring workers and revealing more information about their abilities through a field experiment in an online marketplace. I hired 952 randomly-selected workers, giving them either detailed or coarse public evaluations. Both hiring workers and providing more detailed evaluations substantially improved workers' subsequent employment outcomes. Under plausible assumptions, the experiment's market-level benefits exceeded its cost, suggesting that some experimental workers had been inefficiently unemployed.
    JEL: J01 J20 J60
    Date: 2013–03
  8. By: ADRIENNE M. LUCAS (Department of Economics,University of Delaware)
    Abstract: Primary school enrollments have increased rapidly in sub-Saharan Africa, spurring concerns about low levels of learning. We analyze field experiments in Kenya and Uganda that assessed whether the Reading to Learn program, implemented by the Aga Khan Foundation in both countries, improved early-grade literacy as measured by common assessments. We find that Ugandan literacy (in Lango) increased by 0.2s. We find a smaller effect (0.08s) on a Kenyan literacy test in Swahili. We find no evidence that differential effects are explained by baseline differences in students or classrooms, or by implementation fidelity. We conclude that differences between countries can likely be attributed to differential effective exposure to the literacy treatment in the tested languages. Students in Kenya were tested in Swahili, which is not necessarily the primary language of instruction, despite official policy.
    Keywords: education, literacy, teacher training, Kenya, Uganda, randomized controlled trial
    JEL: I2 O15 H52
    Date: 2013
  9. By: James Alm (Department of Economics, Tulane University)
    Abstract: Taxpayers face well-known and well-identified individual motivations in their compliance decisions, motivations that originate with the standard economic model of tax evasion in which financial incentives are shaped by audit, penalty, and tax rates. However, there is growing evidence that these individual incentives, while important, are not always decisive. Individuals do not always behave as the selfish, rational, self-interested individuals portrayed in the standard neoclassical paradigm, but rather are often motivated by many other factors that have as their main foundation some aspects of social norms, morality, altruism, fairness, or the like, factors that I broadly and no doubt imprecisely lump together as group motivations. I argue that the compliance puzzle can be explained, at least in part, by expanding the standard analysis of individual compliance behavior to incorporate the important ways in which individual decisions are shaped by group motivations. I also provide empirical and experimental evidence to support these arguments, and, I suggest – and predict – some promising lines of future research.
    Keywords: tax evasion, behavioral economics, experimental economics
    JEL: H2 H26 D03 C9
    Date: 2013–02
  10. By: Charles A. Holt (University of Virginia); William M. Shobe (University of Virginia)
    Abstract: The state of California has implemented an economy-wide program to regulate its greenhouse gas emissions. A significant share of the emission reductions will be obtained via a cap and trade program with a mix of auctioning and free allocation of allowances. This program has a number of novel design features including, among other things, a price containment reserve, a limit on ownership of allowances, and the forced consignment to auction of some of the share of freely allocated allowances. We use a series of laboratory experiments to test the influence of two of these design features on the performance of the emissions market. We test the effect of holding limits and of the new three-tier price containment sale mechanism. We find that tight holding limits used to prevent market dominance reduce liquidity and appear to harm market efficiency and price discovery. The price containment sale mechanism reduces price spikes during periods of high allowance demand and has different effects on market performance than releasing the price containment reserve as part of the auction of allowances. We discuss the implications for the design of price containment reserves.
    Keywords: Emission markets; experiments; cap and trade; greenhouse gas emissions; market design
    Date: 2013–02–18
  11. By: Lawless, Lydia J.R.; Nayga, Rodolfo; Drichoutis, Andreas
    Abstract: Time preferences indicate preferences over streams of future consumption which significantly shape individual decision making including the health domain. In this paper, we review published studies to assess the influence of time preferences on human health behaviour. We first discuss the theoretical background of time preferences; ascertain the differences between private and social discount rates; identify the impact of time preferences on governments of developing nations; and then assess how time preferences influence risky behaviour such as being overweight, smoking, and engaging in risky sexual behaviour. The issue of whether to use proxies or experimental time preference elicitation methods in time preference studies is also addressed.
    Keywords: time preference; health domain; risk aversion; discount rate; behaviour
    JEL: D90 I0
    Date: 2013–03–21
  12. By: Keith Marzilli Ericson; Judd B. Kessler
    Abstract: We examine how the articulation of government policy affects behavior. Our experiment compares a government mandate to purchase health insurance to a financially equivalent tax on the uninsured. Participants report their probability of purchasing health insurance under one of the two articulations of the policy. The experiment was conducted in four waves, from December 2011 to November 2012. We document the controversy over the Affordable Care Act’s insurance mandate provision that changed the political discourse during the year. Pre-controversy, articulating the policy as a mandate, rather than a financially equivalent tax, increased probability of insurance purchase by 10.6 percentage points — an effect comparable to a $1000 decrease in annual premiums. After the controversy, the mandate is no more effective than the tax. Our results show that how a policy is articulated affects behavior and that persuasion and public opinion management can help achieve policy objectives at lower cost.
    JEL: D02 D03 D04 H2 H3 K42
    Date: 2013–03

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