Can real-effort investments inhibit the convergence of experimental markets?

Timothy N. Cason, Lata Gangadharan, Nikos Nikiforakis

Research output: Contribution to journalArticle

Abstract

Evidence shows that real-effort investments can affect bilateral bargaining outcomes. This paper investigates whether similar investments can inhibit equilibrium convergence of experimental markets. In one treatment, sellers' relative effort affects the allocation of production costs, but a random productivity shock ensures that the allocation is not necessarily equitable. In another treatment, sellers' effort increases the buyers' valuation of a good. We find that effort investments have a short-lived impact on trading behavior when sellers' effort benefits buyers, but no effect when effort determines cost allocation. Efficiency rates are high and do not differ across treatments.

Original languageEnglish (US)
Pages (from-to)97-103
Number of pages7
JournalInternational Journal of Industrial Organization
Volume29
Issue number1
DOIs
StatePublished - Jan 2011

Keywords

  • Posted-offer markets
  • Property rights
  • Random shock
  • Real effort
  • Surplus creation

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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