Smith’s paradox of price and negotiation: Empirical evidence from India

Abstract

Diamond-water paradox has enticed the human mind for generations. Adam Smith gave it a new twist in the Wealth of Nations that serves as the basis of all modern valuation theories. This paper goes back to the original writing of Smith to identify paradoxes and then empirical test in the context of land value. The review of original texts and empirical evidence suggests the existence of a third principle, i.e. “riches and poverty of those who demand”. This indication demands a re-evaluation of Smith’s paradox of value and has implication of modern science of valuation.