Ethical differentiation and consumption in an incentivized market experiment

In surveys consumers express preferences for ethical goods. Some authors claim, however, that survey responses do not translate into actual costly purchase behavior. To study if ethical consumption and differentiation occur in an incentive-compatible setting, this paper implements a design of an incentivized market experiment, which has been studied in the context of homogenous goods and both theoretically and experimentally engenders a dynamic of price decrease. This experiment establishes that ethical differentiation can be an effective strategy for sellers with ethically motivated buyers; and, although there is an ethical price premium, it accrues to the charity rather than to the seller.FEDER funds through Programa Operacional Factores de Competitividade—COMPETE and by national funds through FCT—Fundacão para a Ciência e Tecnologia (FCT Portugal) project Grant No. PTDC/IIM-ECO/4574/2012 andPEst-OE/EGE/UI3181/2014