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on Experimental Economics |
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Issue of 2013‒09‒24
twenty-two papers chosen by |
| By: | Vranceanu, Radu (ESSEC Business School); El Ouardighi, Fouad (ESSEC Business School); Dubart , Delphine (ESSEC Business School) |
| Abstract: | This paper reports the results from a real-effort team production experiment, where best performers can impose either tacit or explicit sanctions on their less-performing partners. The behavior of the best performer in the team differs from one condition to another. When explicit sanctions are not allowed, good performers reduce their effort in response to the advantageous difference in scores; when they can impose sanctions, their change in effort is no longer related to the difference in scores. To some extent, a mechanism of explicit sanctions allows good performers to focus on their own performance. Not sanctioning an opponent who under-performs, what we refer to as forgiveness, prompts the latter to improve his performance, but applying the sanction has a stronger effect. |
| Keywords: | Team work; Performance; Experimental economics; Punishment |
| JEL: | C92 D03 M52 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-13010&r=exp |
| By: | Gurdal, Mehmet (Bogazici University); Miller, Joshua B. (Bocconi University); Rustichini, Aldo (University of Minnesota) |
| Abstract: | We provide experimental evidence that subjects blame others based on events they are not responsible for. In our experiment an agent chooses between a lottery and a safe asset; payment from the chosen option goes to a principal who then decides how much to allocate between the agent and a third party. We observe widespread blame: regardless of their choice, agents are blamed by principals for the outcome of the lottery, an event they are not responsible for. We provide an explanation of this apparently irrational behavior with a delegated-expertise principal-agent model, the subjects’ salient perturbation of the environment. |
| Keywords: | Experiments; Rationality; Fairness |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:157&r=exp |
| By: | Catia Batista (Faculdade de Economia, Universidade Nova de Lisboa and IZA); Dan Silverman (Arizona State University and NBER); Dean Yang (Department of Economics and Gerald R. Ford School of Public Policy, University of Michigan, NBER, and BREAD) |
| Abstract: | We investigate the determinants of giving in a lab-in-the-field experiment with large stakes. Study participants in urban Mozambique play dictator games where their counterpart is the closest person to them outside their household. Dictators share more with counterparts when they have the option of giving in kind (in the form of goods), compared to giving that must be in cash. Qualitative post-experiment responses suggest that this effect is driven by a desire to control how recipients use gifted resources. Standard economic determinants such as the rate of return to giving and the size of the endowment also affect giving, but the effects of even large changes in these determinants are significantly smaller than the effect of the in-kind option. Our results support theories of giving where the utility of givers depends on the composition (not just the level) of gift-recipient expenditures, and givers thus seek control over transferred resources. |
| Keywords: | sharing, altruism, giving, dictator game, inter-household transfers, Mozambique |
| JEL: | C92 C93 D01 D03 D64 O17 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nor:wpaper:2013020&r=exp |
| By: | Delaney, Jason (School of Business, Georgia Gwinnett College, 1000 University Center Lane, Lawrenceville, GA 30043, USA); Jacobson, Sarah (Department of Economics, Williams College, 24 Hopkins Hall Dr., Williamstown, MA 01267, USA) |
| Abstract: | We study the comparative effectiveness of three policy interventions in a lab experiment that models common pool resources. The interventions we examine are a Pigouvian subsidy, information provision, and an appeal to social norms. The subsidy successfully reduces over-extraction to close to the efficient level on average, but even groups that were not over-extracting are induced to extract less. Because the social optimum is interior, over-compliance reduces efficiency. Moreover, when the subsidy is removed, extraction reaches its least efficient level. Both information provision and normative appeals increase efficiency by reducing over-extraction without exacerbating over-compliance, although the reduction in extraction is much less than that seen with the subsidy. Some of the effect of normative appeals persists even after messages stop being sent. Net of estimates of the marginal cost of raising public funds to pay for a subsidy, the efficiency achieved by the two nonpecuniary treatments is comparable to that achieved by the Pigouvian subsidy. |
| Keywords: | laboratory experiment, Pigouvian tax, Pigouvian subsidy, common pool resource, information provision, normative messaging |
| JEL: | H41 H21 C91 C92 D62 D83 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2013-02&r=exp |
| By: | Alain Cohn; Jan Engelmann; Ernst Fehr; Michel Maréchal |
| Abstract: | A key ingredient of many popular asset pricing models is that investors exhibit countercyclical risk aversion, which helps explain major puzzles in financial economics such as the strong and systematic variation in risk premiums over time and the high volatility of asset prices. There is, however, surprisingly little evidence for this assumption because it is difficult to control for the host of factors that change simultaneously during financial booms and busts. We circumvent these control problems by priming financial professionals with either a boom or a bust scenario and by subsequently measuring their risk aversion in two experimental investment tasks with real monetary stakes. Subjects who were primed with a financial bust were substantially more risk averse than those who were primed with a boom. Subjects were also more fearful in the bust than in the boom condition, and their fear is negatively related to investments in the risky asset, suggesting that fear may play an important role in countercyclical risk aversion. The mechanism described in this paper is relevant for theory and has important implications for financial markets, as it provides the basis for a self-reinforcing process that amplifies market dynamics. |
| Keywords: | Countercyclical risk aversion, experiment, financial professionals |
| JEL: | G02 C91 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:zur:uceswp:004&r=exp |
| By: | Hoppe, Eva I; Schmitz, Patrick W |
| Abstract: | In the basic adverse selection model, a seller makes a contract offer to a privately informed buyer. A fundamental hypothesis of incentive theory is that the seller may want to offer a menu of contracts to separate the buyer types. In the good state of nature, total surplus is not different from the symmetric information benchmark, while in the bad state, private information may be welfare-reducing. We have conducted a laboratory experiment with 954 participants to test these hypotheses. While the results largely corroborate the theoretical predictions, we also find that private information may be welfare-enhancing in the good state. |
| Keywords: | Incentive theory; Laboratory experiment; Mechanism design; Private information |
| JEL: | C72 C92 D82 D86 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9510&r=exp |
| By: | Kenju Kamei; Louis Putterman |
| Abstract: | Previous research has shown that opportunities for two-sided partner choice in finitely repeated social dilemma games can promote cooperation through a combination of sorting and opportunistic signaling, with late period defections by selfish players causing an end-game decline. How such experience would affect play of subsequent finitely-repeated games remains unclear. In each of six treatments that vary the cooperation premium and the informational basis for reputation formation, we let sets of subjects play sequences of finitely-repeated voluntary contribution games to study the competing forces of (a) learning about the benefits of reputation, and (b) learning about backward unraveling. We find, inter alia, that with a high cooperation premium and good information, investment in reputation grows across sets of finitely-repeated games. |
| Keywords: | cooperation, reputation, voluntary contribution, public goods, sorting, endogenous grouping, group formation, experiment |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bro:econwp:2013-8&r=exp |
| By: | Angelucci, Manuela; Karlan, Dean S.; Zinman, Jonathan |
| Abstract: | Theory and evidence have raised concerns that microcredit does more harm than good, particularly when offered at high interest rates. We use a clustered randomized trial, and household surveys of eligible borrowers and their businesses, to estimate impacts from an expansion of group lending at 110% APR by the largest microlender in Mexico. Average effects on a rich set of outcomes measured 18-34 months post-expansion suggest some good and little harm. Other estimators identify heterogeneous treatment effects and effects on outcome distributions, but again yield little support for the hypothesis that microcredit causes harm. |
| Keywords: | Compartamos Banco; microcredit; microcredit impact; microentrepreneurship |
| JEL: | D12 D22 G21 O12 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9506&r=exp |
| By: | Katharina Gangl; Benno Torgler; Erich Kirchler; Eva Hofmann |
| Abstract: | The tax compliance literature has mainly focused on individual tax evasion rather than firm tax evasion. In general, there is a lack of field experiments on the topic, and measuring tax compliance is challenging. To address this shortcoming in the literature, we conduct a field experiment on firm tax compliance looking at newly founded firms. As a novelty we explore how firms react to closer supervision by the tax administration, looking at timely paying which has no measurement biases. Interestingly, we observe a crowding-out effect of supervision on timely paying of taxes. On the other hand, for those who were non-compliant, supervision reduced the tax amount that was due. |
| Keywords: | : tax compliance, tax evasion, field experiment, deterrence, tax enforcement, supervision |
| JEL: | H26 C93 K42 |
| Date: | 2013–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:qut:qubewp:wp019&r=exp |
| By: | Noam Yuchtman (UC Berkeley); Florian Ederer (UCLA); Bruno Ferman (The George Washington University); Leonardo Bursztyn (UCLA) |
| Abstract: | Using a high-stakes field experiment conducted with a financial brokerage, we implement a novel design to separately identify two channels of social influence in financial decisions, both widely studied theoretically. When someone purchases an asset, his peers may also want to purchase it, both because they learn from his choice ("social learning") and because his possession of the asset directly affects others' utility of owning the same asset ("social utility"). We find that both channels have statistically and economically significant effects on investment decisions. These results can help shed light on the mechanisms underlying herding behavior in financial markets. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:222&r=exp |
| By: | Nathan Fiala |
| Abstract: | Classic economic theory predicts that markets will clear, leaving little or no gains from trade left on the table. Laboratory experiments have largely confirmed this, though the results of recent field experiments have been mixed, with some artefactual markets in developing countries performing relatively inefficiently. I create a realistic multi-round trading market in Uganda with market-experienced individuals to explore the efficiency of trading and test what individual traits predict market efficiency and bargaining success using a rich dataset on individual characteristics. In early rounds, market efficiency is low. By the final round, efficiency rates are closer to theory. I find that individual characteristics of the buyers and sellers strongly predict the level of efficiency within the individual rounds. Individual characteristics are also important for individual success and divide along bargaining power: for buyers, who by design have high market power, wealth and patience are positively and significantly correlated with rents; for sellers with low market power, education, anti-social behavior and aggression are positively and significantly associated with rents. The results of the bargaining game also correlate with wealth levels two years after the experiment, suggesting that market prowess predicts lifetime outcomes. The results add importance to the role of individual characteristics for individual and social efficiency outcomes. |
| Keywords: | Market interaction, market efficiency, developing markets, individual characteristics |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1326&r=exp |
| By: | Richard A Iles; John M Rose |
| Keywords: | Stated Choice, experimental design, choice task simplification, cognitive burden, Indian primary health care, Attribute nonattendance |
| JEL: | I11 C93 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:gri:epaper:economics:201305&r=exp |
| By: | Tobias Regner (Max Planck Institute for Economics, Jena); Gerhard Riener (Duesseldorf Institute for Competition Economics (DICE)) |
| Abstract: | The emergence of Pay-What-You-Want (PWYW) business models as a successful alternative to conventional uniform pricing brings up new questions related to the task of pricing. We investigate the eect of a reduction of privacy on consumers' purchase decisions (whether to buy, and if so how much to pay) in a natural experiment at an online music store with PWYW-like pricing. Our study extends the empirical evidence of the reduced anonymity eect, previously established for donation or public goods contexts, to a consumption environment. We nd that revealing the name of the customer led to slightly higher payments, while it drastically reduced the number of customers purchasing. Overall, the regime led to a revenue loss of 15%. The experiment suggests that even low levels of social pressure without face to face interaction on customers leads to a reduction of welfare. |
| Keywords: | Digital content, Voluntary Payments, PWYW, Public goods, Voluntary contributions, Social pressure, Internet, Privacy, Natural experiment |
| JEL: | D03 D49 H41 L82 L86 P14 |
| Date: | 2013–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2013-032&r=exp |
| By: | Keith M. Marzilli Ericson; Andreas Fuster |
| Abstract: | The endowment effect is among the best known findings in behavioral economics, and has been used as evidence for theories of reference-dependent preferences and loss aversion. However, a recent literature has questioned the robustness of the effect in the laboratory, as well as its relevance in the field. In this review, we provide a summary of the evidence, and describe recent theoretical developments that can potentially reconcile the different findings, with a focus on expectation-based reference points. We also survey recent work from psychology that provides either alternatives to or refinements of the usual loss aversion explanation. We argue that loss aversion is still the leading paradigm for understanding the endowment effect, but that given the rich psychology behind the effect, a version of the theory that encompasses multiple reference points may be required. |
| JEL: | C91 D03 D11 D87 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19384&r=exp |
| By: | Anderson, James H. |
| Abstract: | Transparency -- sunshine -- is often touted as a core element of the governance agenda, and one that is most important in environments with low transparency to begin with. In a provocative paper published in the American Political Science Review, Edmund Malesky, Paul Schuler, and Anh Tran present the results of a creative experiment in which they provided an additional spotlight on the activities of a random sample of delegates to Vietnam's National Assembly. They report that the effect of sunshine was negative, that delegates subject to this treatment curtailed their speech, and that those who spoke most critically were punished through the subsequent election and promotion processes. The present paper argues that Malesky, Schuler, and Tran's results, if interpreted correctly, actually predict a net positive effect of transparency. The differences in interpretation stem primarily from three sources: the interpretation of regression results for models with interaction terms, the interpretation of the variable for Internet penetration, and significant pre-treatment differences between treated and control delegates. For the context in which more than 80 percent of delegates operate, Malesky, Schuler, and Tran's results predict a positive but insignificant effect of transparency. In addition, Internet penetration, itself a measure of access to information, is positively associated with critical speech. The paper draws lessons for the design and interpretation of randomized experiments with interaction effects. |
| Keywords: | Technology Industry,Educational Technology and Distance Education,Information Security&Privacy,Disease Control&Prevention,Economic Theory&Research |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6602&r=exp |
| By: | James J. Heckman; Rodrigo Pinto |
| Abstract: | This paper presents an econometric mediation analysis. It considers identification of production functions and the sources of output effects (treatment effects) from experimental interventions when some inputs are mismeasured and others are entirely omitted. |
| JEL: | C21 C38 C43 D24 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19314&r=exp |
| By: | Banerjee, Abhijit; Duflo, Esther; Glennerster, Rachel; Kinnan, Cynthia |
| Abstract: | This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts. |
| Keywords: | Microfinance |
| JEL: | D21 G21 O16 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9437&r=exp |
| By: | Sebastian Galiani (Washington University in St. Louis); Ricardo Perez-Truglia (Harvard University and Universidad de San Andres) |
| Abstract: | We review the empirical evaluation of three school-management interventions: school decentralization, tracking and contract teachers. We provide stylized models to organize the discussion of the results. We look at the average and distributional effects of the policies and stress the possible importance of complementary interventions aimed at reducing inequality when the programs are cost-effective but engender greater benefits to the best students. We compare the results across non-experimental, quasi-experimental and experimental studies, and argue, not surprisingly, that a solid identification strategy is critical to getting the policy recommendations right. Finally, we identify some problems that future research should address. |
| JEL: | H00 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:dls:wpaper:0147&r=exp |
| By: | Daniel Paravisini; Antoinette Schoar |
| Abstract: | We distinguish the impact of information technology adoption on information processing costs and agency costs by conducting a randomized control trial with a bank that adopts a new credit-scoring tool. The availability of scores significantly increases credit committees' effort and output on difficult-to-evaluate loan applications. Output increases almost as much in a treatment where the committee receives no new information, but anticipates the score becoming available after it evaluates a application, which suggests that scores reduce incentive problems inside the credit committee. We also show that scores improve efficiency by decentralizing decision-making and equalizing marginal returns across loans. |
| JEL: | D23 G21 L23 O33 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19303&r=exp |
| By: | Raballand, Gael; Rajaram, Anand |
| Abstract: | Starting with the hypothesis that behaviors are the critical (and often overlooked) factor in public sector performance, this paper explores the notion of how behavioral change (and thus institutional change) might be better motivated in the public sector. The basis for this study is"an accidental experiment"resulting from the World Bank's operational engagement in Cameroon. In 2008, World Bank staff successfully concluded preparation on a project to support the Government of Cameroon to improve transparency, efficiency, and accountability of public finance management. The US$15 million project supported a number of ministries to strengthen a broad range of management systems and capacities. Independently and concurrently, other Bank staff initiated a low-profile, technical assistance project to improve performance in Cameroon's Customs, supported by a small trade facilitation grant of approximately US$300,000. One approach appears to have succeeded in initiating change while the other has signally failed. The two projects of different scale, scope and design in the same governance environment offer a very interesting natural experiment (unplanned but accidental for that reason) that allows insights into the nature of institutional change and the role of behavior and incentives and approaches that offer greater prospects for making reform possible. The paper confirms the value of using ideas from behavioral economics, both to design institutional reforms and to critically assess the approach to institutional reform taken by development agencies such as the World Bank. |
| Keywords: | Environmental Economics&Policies,Cultural Policy,National Governance,E-Business,Public Sector Economics |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6595&r=exp |
| By: | Andrew Caplin; Mark Dean |
| Abstract: | The model of rational inattention with Shannon mutual information costs is increasingly ubiquitous. We introduce a new solution method that lays bare the general behavioral properties of this model and liberates development of alternative models. We experimentally test a key behavioral property characterizing the elasticity of choice mistakes with respect to attentional incentives. We find that subjects are less responsive to such changes than the model implies. We introduce generalized entropy cost functions that better match this feature of the data and that retain key simplifying features of the Shannon model. |
| JEL: | D83 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19318&r=exp |
| By: | Ravallion, Martin; van de Walle, Dominique; Dutta, Puja; Murgai, Rinku |
| Abstract: | Public knowledge about India's ambitious Employment Guarantee Scheme is low in one of India's poorest states, Bihar, where participation is also unusually low. Is the solution simply to tell people their rights? Or does their lack of knowledge reflect deeper problems of poor people's agency and an unresponsive supply side? This paper reports on an information campaign that was designed and implemented in the form of an entertaining movie to inform people of their rights under the scheme. In randomly-assigned villages, the movie brought significant gains in knowledge and more positive perceptions about the impact of the scheme. But objectively measured employment showed no gain on average, suggesting that the movie created a"groupthink,"changing social perceptions about the scheme but not individual efficacy in accessing it. The paper concludes that awareness generation needs to go hand-in-hand with supply-side changes. |
| Keywords: | Agricultural Knowledge and Information Systems,Population Policies,Rural Development Knowledge&Information Systems,Primary Education,Knowledge for Development |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6598&r=exp |