Is the Experimental Auction a Dynamic Market?

Experimental auctions are generally thought of as static markets. This paper presents the results of an experimental auction designed to test whether participants’ perceptions regarding the relative difficulty of delaying or reversing a transaction outside of the experimental market systematically affect their willingness-to-pay bids. The results show that auction participants’ perceptions significantly impact their bids in a manner that is consistent with real option theory. These results suggest that economists must be careful to consider the existence of outside markets when designing experimental auctions.experimental auctions, dynamic markets, real option theory, commitment cost

The Pollution Game: A Classroom Exercise Demonstrating the Relative Effectiveness of Emissions Taxes and Tradable Permits

This classroom exercise illustrates the strengths and weaknesses of various regulatory frameworks aimed at internalizing negative externalities from pollution. Specifically, the exercise divides students into three groups—the government regulatory agency and two polluting firms—and allows them to work through a system of uniform command-and-control regulation, a tradable emissions permit framework, and an emissions tax. Students have the opportunity to observe how flexible, market-oriented regulatory frameworks can outperform inflexible command-and-control. More importantly given the ongoing debate about how best to regulate carbon dioxide emissions, students can also observe how the introduction of abatement-cost uncertainty can cause one market-oriented solution to outperform another.classroom experiments, emissions taxes, pollution, tradable emissions permits

The Reverse Auction: A New Approach to Experimental Auction Valuation

I propose an alternative approach to auction valuation in which participants indicate the quantity they wish to buy at a series of prices, with the understanding that one will be randomly chosen as the binding price. This technique allows researchers to estimate entire demand curves as well as own-price elasticities.Demand and Price Analysis,

Estimating the Value Consumers Derive from Product Labeling

Firms spend billions of dollars annually on new product and label designs in order to attract and retain customers. The issue of labeling is also important to government agencies and nonprofit labeling organizations. For example, the U.S. Food and Drug Administration has an organizational body in its Office of Nutritional Products that deals with issues of food and dietary supplement labeling. The U.S. Department of Agriculture’s Food Safety and Inspection Service also deals with labeling through its Labeling and Consumer Protection Staff. These government agencies spend millions of dollars trying to ensure that food labels adequately inform consumers. One issue that has not been examined is the welfare difference to consumers from alternative labeling schemes/regulations. It seems likely that different labels would differ in effectiveness at informing consumers.

Do Practice Rounds Bias Experimental Auction Results?

Consumer/Household Economics,

Posted Prices and Bid Affiliation: Evidence from Experimental Auctions

In most experimental auctions, researchers ask participants to bid on the same item in multiple potentially binding rounds, posting the price submitted by the top bidder or bidders after each of those rounds. If bids submitted in later rounds are affiliated with posted prices from earlier rounds, this practice could result in biased value estimates. In this article we discuss the results of an experiment designed explicitly to test whether posted prices affect bidding behavior. We find that for familiar items, high posted prices lead to increased bids in subsequent rounds. Our results have implications for researchers conducting experimental auctions.Experimental Auctions, Posted Prices, Affiliation

The Effect of Initial Endowments in Experimental Auctions

We report the results of an experiment designed to test whether initial endowments affect value estimates elicited from experimental auctions. Comparing bids for one unit of a good, two units of a good, and a second unit of a good when endowed with the first unit, we find that willingness to pay for the second unit of a good is, on average, as much as 75% higher when endowed with the first unit. We go on to advance two theories that could potentially reconcile our results with neoclassical consumer theory.Endowment Effect, Experimental Auctions, Reciprocity, Top-Dog Effect

Consumer Preferences for Fair Trade Foods: Implications for Trade Policy

Food Consumption/Nutrition/Food Safety, International Relations/Trade, Q18, Q51 Effects,

AJAE Appendix: Posted Prices and Bid Affiliation: Evidence from Experimental Auctions

The material contained herein is supplementary to the article named in the title and published in the American Journal of Agricultural Economics, Volume 88, Number 4, November 2006.Demand and Price Analysis,

Testing for the Internal Consistency of Choice Experiments Using Explicit Rankings of Quality Attributes

Choice experiments (CEs) are an increasingly important tool in the environmental valuation literature because of their ability to deal with multifaceted environmental issues and their basis in random utility theory. One particularly useful aspect of the CE method is that it allows researchers to estimate marginal rates of substitution between an environmental resource’s various attributes. These marginal rates of substitution provide an implicit ranking of the attributes, which can be compared with other ranking mechanisms. In this paper we describe a method for testing for the internal consistency of choice experiments by comparing the implicit attribute ranking generated by a CE with that generated by an explicit attribute-ranking exercise. The analysis uses data gathered through a unique survey in which respondents completed both a CE exercise and an attribute-ranking exercise indicating their preferences over pollution abatement and water quality improvement strategies for a freshwater lake in north-central Iowa. Comparisons are made on a sample-wide basis as well as an individual basis.Environmental valuation, choice experiments, internal consistency