Indirect Evolution Versus Strategic Delegation: A Comparison of Two Approaches to Explaining Economic Institutions

The two major methods of explaining economic institutions, namely by strategic choices or by (indirect) evolution, are compared for the case of a homogenous quadratic duopoly market. Sellers either can provide incentives for their agents to care for sales (amounts) or evolve as sellers who care for sales in addition to profits. Whereas strategic delegation does not change the market results as compared to the usual duopoly solution, indirect evolution causes a more competitive behavior. Thus the case at hand suffices to demonstrate the difference between the two approaches in explaining economic institutions.noncooperative games;duopoly;organizational behavior

Crossing the Point of No Return: A Public Goods Experiment

Participants in a public goods experiment receive private or common signals regarding the so-called "point of no return", meaning that if the group's total contribution falls below this point, all payoffs are reduced. An individual faces the usual conflict between private and collective interests above the point of no return, while he incurs the risk of damaging everyone by not surpassing the point. Our data reveal that contributions are higher if the cost of not reaching the threshold is high. In particular if the signal is private, many subjects are not willing to provide the necessary contribution.Public goods, provision point mechanism, experiments, reduction factor, signal

Ranking alternatives by a fair bidding rule: a theoretical and experimental analysis

We introduce a procedurally fair rule to study a situation where people disagree about the value of three alternatives in the way captured by the voting paradox. The rule allows people to select a final collective ranking by submitting a bid vector with six components (the six possible rankings of the three alternatives). In a laboratory experiment we test the robustness of the rule to the introduction of subsidies and taxes. We have two main results. First, in all treatments, the most frequently chosen ranking is the socially efficient one. Second, subsidies slightly enhance overbidding. Furthermore, an analysis of individual bid vectors reveals interesting behavioral regularities.Bidding behavior, Procedural fairness, Voting paradox

"One man's meat is another man's poison." An experimental study of voluntarily providing public projects that raise mixed feelings.

We compare, on the basis of a procedurally fair "provision point" mechanism, bids for a public project from which some gain and some lose with bids for a less efficient public project from which all gain. In the main treatment, participants independently decide which one, if any, of the public projects should be implemented. We also run control treatments where only one of the two projects can be implemented. We find that (a) mixed feelings per se do not affect bidding behavior, and (b) the provision frequency of the project that raises mixed feelings declines significantly when it faces competition from the public good.Public project, Bidding behavior, Procedural fairness

Does procedural fairness crowd out other-regarding concerns? A bidding experiment

Bidding rules that guarantee procedural fairness may induce more equilibrium bidding and moderate other-regarding concerns. In our experiment, we assume commonly known true values and only two bidders to implement a best-case scenario for other-regarding concerns. The two-by-two factorial design varies ownership of the single indivisible commodity (an outside seller versus collective ownership) and the price rule (first versus second price). Our results indicate more equilibrium behavior under the procedurally fair price rule, what, however, does not completely crowd out equality and efficiency seekinAuctions, Fair Division Games, Procedural fairness

Employment Duration and Resistance to Wage Reductions: Experimental Evidence

One of the long-standing puzzles in economics is why wages do not fall sufficiently in recessions so as to avoid increases in unemployment. Put differently, if the competitive market wage declines, why don't employers simply force their employees to accept lower wages as well? As an alternative to reviewing statistical data we have performed an experiment with a lower competitive wage in the second phase of an employment relationship that is known to both parties. Our hypothesis is that employers will not lower wages correspondingly and that employees will resist such wage cuts. Our experiment casts two subjects in the highly stylized roles of employer and employee. We find at most mild evidence for resistance to wage declines. Instead, the experimental results can be more fruitfully interpreted in terms of an "ultimatum game", in which some surplus between employers and employees is split. In this view, wages and their lack of decline are simply the mechanical tool for accomplishing this split.wage flexibility;ratchet effect (of wages);(wage) bargaining;labour market;ultimatum game;fair wages

Family Versus Public Solidarity: Theory and Experiment

We present an overlapping generations model with two families who can guarantee old age support either by intra-family transfers from child to parent or via a tax-financed public pension system encompassing both families.We derive the individually and family-specific optimal decisions and present some more behavioristic hypotheses.Our experimental observations allow conclusions on (1) whether raising taxes crowds out voluntary transfers, (2) how income distributions influence family and public solidarity, and (3) whether participants prefer more to less public solidarity.voting;pensions;families;overlapping generations