Social Preferences and Competition

Schmidt, Klaus M. (January 2010): Social Preferences and Competition. Discussion Papers in Economics 2010-6

Abstract

There is a general presumption that social preferences can be ignored if markets are competitive. Market experiments (Smith 1962) and recent theoretical results (Dufwenberg et al. 2008) suggest that competition forces people to behave as if they were purely self-interested. We qualify this view. Social preferences are irrelevant if and only if two conditions are met: separability of preferences and completeness of contracts. These conditions are often plausible, but they fail to hold when uncertainty is important (financial markets) or when incomplete contracts are traded (labor markets). Social preferences can explain many of the anomalies frequently observed on these markets.

• Item Type: Paper
• Form of publication: Preprint
• Keywords: Social preferences, competition, separability, incomplete contracts, asset markets, labor markets
• Faculties: Economics; Economics > Munich Discussion Papers in Economics; Economics > Munich Discussion Papers in Economics > Behavioral Economics; Economics > Chairs > Seminar for Economic Theory
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: C9, D5, J0
• Language: English

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