HOW LARGE ARE NON-BUDGET-CONSTRAINT EFFECTS OF PRICES ON DEMAND?

Elementary consumer theory assumes that prices affect demand only because they affect the budget constraint (BC). By contrast, several models suggest that prices can affect demand through other channels (e.g. because they signal quality). This alternative conjecture is consistent with evidence from marketing studies. However, neither theory nor evidence is informative regarding the magnitude of non-BC effects. The key econometric challenge arises from the fact that a change in prices typically also changes the BC. This paper uses a lab and a field experiment to disentangle BC from non-BC effects of prices on demand. In our lab experiment we find that, consistent with marketing evidence, prices positively affect stated willingness to pay. However, when examining actual demand, non-BC price elasticities are considerably smaller than BC price elasticities and are often statistically insignificant. Further, these non-BC elasticities do not increase with product uncertainty. Finally, we do not detect any non-BC effects in our field experiment

How Large Are Non-Budget-Constraint Effects of Prices on Demand?

Elementary consumer theory assumes prices affect demand only because they affect the budget constraint (BC). Alternative models, and some evidence, suggest prices can affect demand through other, non-BC channels (e.g., by signaling quality). This paper uses a lab and a field experiment to disentangle BC from non-BC effects of prices on demand. In the lab, we find that although prices positively affect stated willingness to pay, non-BC price elasticities are considerably smaller than BC price elasticities, are often statistically insignificant, and do not increase with product uncertainty. We do not detect any non-BC effects in our field experiment. (JEL C93, D12, M31)

Non-Consequentialist Voting

Standard theory assumes that voters' preferences over actions (voting) are induced by their preferences over electoral outcomes (policies, candidates). But voters may also have non-consequentialist (NC) motivations: they may care about how they vote even if it does not a¤ect the outcome. When the likelihood of being pivotal is small, NC motivations can dominate voting behavior. To examine the prevalence of NC motivations, we design an experiment that exogenously varies the probability of being pivotal yet holds constant other features of the decision environment. We find a significant e¤ect, consistent with at least 12.5% of subjects being motivated by NC concerns.

2009) Social Identity and Preferences over Redistribution, The Hebrew University mimeo

We design an experiment to study the effects of social identity on preferences over redistribution. The experiment highlights the trade-off between social identity concerns and maximization of monetary payoffs. Subjects belonging to two distinct natural groups are randomly assigned gross incomes and vote over alternative redistributive tax regimes, where the regime is chosen by majority rule. We find that a significant subset of the subjects systematically deviate from monetary payoff maximization towards the tax rate that benefits their group when the monetary cost of doing so is not too high. These deviations cannot be explained by efficiency concerns, inequality aversion, reciprocity, social learning or conformity. Finally, we show that behavior in the lab helps explain the relationship between reported income and stated preferences over redistribution observed in survey data

2009) Social Identity and Preferences over Redistribution, The Hebrew University mimeo

We thank Christina Fong and Eyal Winter for very helpful discussions and comments. We are grateful to Yaron Aronshtrom for providing outstanding research assistance and Tomer Aharoni for programing the experiment. The paper has bene…ted from the comments of audiences at the conference on A¤ect, Motivation and Decision Making (Israel, 2006) and the AEA meetings (Chicago, 2007). We gratefully aknowledge the …nancial support of the Maurice Falk Institute for Economic Research which made this project possible. Esteban F. Klor also thanks the …nancial support from the Israeli Foundations Trustees. All errors and mistakes remain our own. We design an experiment to study the e¤ects of social identity on preferences over redistribution. The experiment highlights the tradeo¤ between social identity concerns and maximization of monetary payo¤s. Subjects belonging to two distinct natural groups are randomly assigned gross incomes and vote over alternative redistributive tax regimes, where the regime is chosen by majority rule. We …nd that a signi…cant subset of the subjects systematically deviate from monetary payo¤ maximization towards the tax rate that bene…ts their group when the monetary cost of doing so is not signi…cantly high. These deviations cannot be explained by e¢ ciency concerns, inequality aversion, reciprocity, social learning or conformity