Does Fairness Prevent Market Clearing? An Experimental Investigation

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Oxford University Press is collaborating with JSTOR to digitize, preserve and extend access to The Quarterly This paper reports the results of an experiment that was designed to test the impact of fairness on market prices. Prices were determined in a one-sided oral auction, with buyers as price-makers. Upon acceptance of an offer, sellers determined the quality of the good. Buyers offered prices that were substantially above the market-clearing level and expected sellers to respond with high quality levels. This expectation was, on average, confirmed by the behavior of sellers. These results provide, therefore, experimental support for the fair wage-effort theory of involuntary unemployment.

Career Concerns Incentives: An Experimental Test

“…We chose a design that is close to that of Irlenbusch and Sliwka (2006) to be able to relate our findings to theirs. Their setup focuses on the impact of transparency on incentives in the specific context of an experimental labor market as pioneered by Fehr et al (1993), which leads to a more complex informational environment combining opportunities for both signaling and signal jamming. Specifically, in their design firms set wages both in the beginning of the first and the second periods (as opposed to only in the second period in our design).…”

“…In contrast to our design, firms in Irlenbusch and Sliwka (2006) can 'invite' reciprocal behavior by making generous wage offers; and managers can reward such behavior through higher effort, which translates into more profit for the firm. It is well established from static versions of such experimental labor marketsà la Fehr et al (1993) that they encourage gift exchange in the form of more effort and higher wages than predicted by models based on selfish preferences. This finding is quite robust to the market institutions and their degree of competitiveness.…”

The Role of Experiments for the Development of Economic Theories

“…8 For example, the gift exchange game by Fehr, Kirchsteiger and Riedl (1993) show under what contractual conditions voluntary cooperation can be sustained. 10 The lab has also been used as a "wind tunnel" to test the design of real world incentive mechanisms.…”

Contracting Under Reciprocal Altruism

“…6 The literature provides evidence for many kinds of intrinsic motivation, apart from altruism and reciprocity. The Ultimatum Game introduced by Güth et al [1982] illustrates that taste for fairness and/or inequality aversion is an important factor determining behavior; another evidence for fairness comes from different versions of the Gift Exchange Game -see Fehr et al [1993], Fehr and Falk [1999]. Social norms (avoiding social disapproval/geting My paper does the similar, though it is based on a different mechanism.…”