|Schmidt, Klaus M. (January 2010): Social Preferences and Competition. Discussion Papers in Economics 2010-6|
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 (Discussion Paper)|
|Keywords:||Social preferences, competition, separability, incomplete contracts, asset markets, labor markets|
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|
|Deposited On:||18. Jan 2010 21:04|
|Last Modified:||11. Feb 2015 21:45|
Al-Ubaydli, Omar, Andersen, Steffen, Gneezy, Uri, and John List. (2008) "For Love or Money? Comparing the Effects of Non-pecuniary and Pecuniary Incentive Schemes in the Workplace." George Mason University. mimeo.
Andreoni, James, and John H Miller. (2002) "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism." Econometrica, 70, 737–753.
Baker, George, Gibbons, Robert, and Kevin J Murphy. (1994) "Subjective Performance Measures in Optimal Incentive Contracts." The Quarterly Journal of Economics, 109, 1125–1156.
Bartling, Björn, Fehr, Ernst, and Klaus M Schmidt.(2009) "Reputation and Job Design." University of Munich. mimeo.
Bellemare, Charles, Kröger, Sabine, and Arthur van Soest. (2008) "Measuring Inequity Aversion in a Heterogeneous Population Using Experimental Decisions and Subjective Probabilities." Econometrica, 76, 815–839.
Bellemare, Charles, and Bruce Shearer. (2007) "Gift Exchange within a Firm: Evidence from a Field Experiment." mimeo.
Berg, Joyce, Dickhaut, John, and Kevin McCabe.(1995) "Trust, Reciprocity, and Social History." Games and Economic Behavior, 10, 122–142.
Bewley, Truman F. (1999) Why wages don't fall during a recession. Cambridge, Mass.: Harvard Univ. Press.
Bewley, Truman F. (1995) "A Depressed Labor Market as Explained by Participants." The American Economic Review, 85, 250–254.
Bolton, Gary E. (1991) "A Comparative Model of Bargaining: Theory and Evidence." The American Economic Review, 81, 1096–1136.
Bolton, Gary E., and Axel Ockenfels. (2000) "ERC: A Theory of Equity, Reciprocity, and Competition." The American Economic Review, 90, 166–193.
Brown, Martin, Falk, Armin, and Ernst Fehr.(2004) "Relational Contracts and the Nature of Market Interactions." Econometrica, 72, 747–780.
Brown, Martin, Falk, Armin, and Ernst Fehr.(2008) "Competition and Relational Contracts: The Role of Unemployment as a Disciplinary Device." University of Zurich. mimeo.
Camerer, Colin. (2003) Behavioral Game Theory. Experiments in Strategic Interaction. Princeton, N.J.: Princeton University Press.
Cameron, Lisa A. (1999) "Raising the Stakes in the Ultimatum Game: Evidence from Indonesia." Economic Inquiry, 37, 47–59.
Card, David, and Anne Krueger. (1995) Math and Measurement: The New Economics of the Minimum Wage. Princeton, N.J.: Princeton Univ. Press.
Chamberlin, Edward H. (1948) "An Experimental Imperfect Market." The Journal of Political Economy, 56, 95–108.
Charness, Gary. (2004) "Attribution and Reciprocity in an Experimental Labor Market." Journal of Labor Economics, 22, 665–688.
Charness, Gary, Frechette, Guillaume R., and John H Kagel. (2004) "How Robust is Laboratory Gift Exchange." Experimental Economics, 7, 189–205.
Charness, Gary, and Matthew Rabin. (2002) "Understanding Social Preferences with Simple Tests." The Quarterly Journal of Economics, 117, 817–869.
Cohn, A., Fehr, Ernst, and Lorenz Goette. (2007) "Gift Exchange and Effort: Evidence from a Field Experiment." University of Zurich. mimeo.
Dohmen, Thomas, Falk, Armin, Huffman, David, and Uwe Sunde. (2009) "Homo Reciprocans: Survey Evidence on Behavioural Outcomes." Economic Journal, 119, 592–612.
Dufwenberg, Martin, Heidhues, Paul, Kirchsteiger, Georg, Riedel, Frank, and Joel Sobel. (2008) "Other-regarding Preferences in General Equilibrium." CEPR Discussion Paper Series, 6815.
Dufwenberg, Martin, and Georg Kirchsteiger. (2004) "A Theory of Sequential Reciprocity." Games and Economic Behavior, 47, 268–298.
Englmaier, Florian, and Stephen Leider. (2008) "Contractual and Organizational Structure with Reciprocal Agents." University of Munich. mimeo.
Falk, Armin, Fehr, Ernst, and Christian Zehnder. (2006) "Fairness Perceptions and Reservation Wages - The Behavioral Effects of Minimum Wage Laws." Quarterly Journal of Economics, 121, 1347–1382.
Falk, Armin, and Urs Fischbacher. (2006) "A theory of reciprocity." Games and Economic Behavior, 54, 293–315.
Fehr, Ernst, Fischbacher, Urs, and Elena Tougareva. (2002) "Do High Stakes and Competition Undermine Fairness? Evidence from Russia." University of Zürich. Institute for Empirical Research in Economics, Working Paper Series, No. 120.
Fehr, Ernst, and Simon Gaechter. (2000) "Cooperation and Punishment in Public Goods Experiments." The American Economic Review, 90, 980–994.
Fehr, Ernst, Goette, Lorenz, and Christian Zehnder. (2009) "A Behavioral Account of the Labor Market: The Role of Fairness Concerns." Annual Review of Economics, 1, 355–384.
Fehr, Ernst, Kirchsteiger, Georg, and Arno Riedl. (1993) "Does Fairness Prevent Market Clearing? An Experimental Investigation." The Quarterly Journal of Economics, 108, 437–459.
Fehr, Ernst, Klein, Alexander, and Klaus M Schmidt. (2007) "Fairness and Contract Design." Econometrica, 75, 121–154.
Fehr, Ernst, and Klaus M Schmidt. (1999) "A Theory of Fairness, Competition and Cooperation." Quarterly Journal of Economics, 114, 817–868.
Fehr, Ernst, and Klaus M Schmidt. (2003) "Theories of Fairness and Reciprocity – Evidence and Economic Applications." In: Dewatripont, M. et al (Hg.): Advances in Economics and Econometrics. Eighth World Congress of the Econometric Society, Vol. 1. Cambridge: Cambridge University Press, 208–257.
Fehr, Ernst, and Klaus M Schmidt . (2006) "The Economics of Fairness, Reciprocity and Altruism - Experimental Evidence and New Theories." In: Kolm, Serge-Christophe; Ythier, Jean Mercier (Hg.): Handbook on the Economics of Giving, Reciprocity and Altruism, Vol. 1. Amsterdam: Elsevier (), 615–691.
Forsythe, Robert, Horowitz, Joel L., Savin, N. E., and Martin Sefton. (1994) "Fairness in Simple Bargaining Experiments." Games and Economic Behavior, 6, 347–369.
Gaechter, Simon, and Armin Falk. (2002) "Reputation and Reciprocity: Consequences for the Labour Relation." The Scandinavian Journal of Economics, 104, 1–26.
Geanakoplos, John, Pearce, David, and Ennio Stacchetti. (1989) "Psychological games and sequential rationality." Games and Economic Behavior, 1, 60–79.
Gebhardt, Georg. (2002) Venture capital, Takeovers and Time-varying Returns. Three essays in financial economics. Dissertation. Berlin: dissertation.de.
Gebhardt, Georg. (2004) "Inequity Aversion, Financial Markets, and Output Fluctuations." Journal of the European Economic Association, 2, 229–239.
Gneezy, Uri, and John List. (2006) "Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments." Econometrica, 74, 1365–1384.
Güth, Werner, Marchand, Nadege, and Jean-Louis Rulliere. (1998) "Equilibration et dependance du contexte. Une evaluation experimentale du jeu de negociation sous ultimatum." Revue Economique, 49, 785–794.
Güth, Werner, Schmittberger, Rolf, and Bernd Schwarze. (1982) "An experimental analysis of ultimatum bargaining." Journal of Economic Behavior & Organization, 3, 367–388.
Hannan, R. L., Kagel, John H., and Donald V Moser. (2002) "Partial Gift Exchange in an Experimental Labor Market: Impact of Subject Population Differences, Productivity Differences, and Effort Requests on Behavior." Journal of Labor Economics, 20, 923–951.
Henrich, Joseph, Boyd, Robert, Bowles, Samuel, Camerer, Colin, Fehr, Ernst, Gintis, Herbert, and Richard McElreath. (2001) "In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies." The American Economic Review, 91, 73–78.
Henrich, J.; Boyd, R.; Bowles, S.; Camerer, C., et al. (eds.). (2004) Foundations of Human Sociality. Oxford: Oxford University Press.
Holt, Charles A., and Loren W Langan. (1986) "Market Power in Oral Double Auctions." Economic Inquiry, 24, 107–123.
Katz, Lawrence, and Anne Krueger. (1991) "The Effects of the New Minimum Wage in a Low-wage Labor Market." Proceedings of the Annual Meetings of the Industrial Relations Research Association, 43, 254–265.
Kirchsteiger, Georg. (1994) "The role of envy in ultimatum games." Journal of Economic Behavior & Organization, 25, 373–389.
Kreps, David M., Milgrom, Paul, Roberts, John, and Robert Wilson. (1982) "Rational cooperation in the finitely repeated prisoners' dilemma." Journal of Economic Theory, 27, 245–252.
Kube, Sebastian, Maréchal, Michel A., and Clemens Puppe. (2006) "Putting Reciprocity to Work - Positive Versus Negative Responses in the Field." mimeo.
Kube, Sebastian, Maréchal, Michel A., and Clemens Puppe. (2008) "The Currency of Reciprocity - Gift-Exchange in the Workplace." mimeo.
Ledyard, John . (1995) "Public Goods: A Survey of Experimental Research." In: Kagel, John Henry; Roth, Alvin E. (Hg.): The handbook of experimental economics. Princeton, NJ: Princeton Univ. Press (), 111–194.
Levine, David K. (1998) "Modeling Altruism and Spitefulness in Experiments." Review of Economic Dynamics, 1, 593–622.
MacLeod, W. B., and James M Malcomson. (1989) "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment." Econometrica, 57, 447–480.
Oreopoulos, Philip, Wachter, Till von, and Andrew Heisz. (2006) "The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates.” mimeo.
Quervain, Dominique J. F. de, Fischbacher, Urs, Treyer, Valerie, Schellhammer, Melanie, Schnyder, Ulrich, Buck, Alfred, and Ernst Fehr. (2004) "The Neural Basis of Altruistic Punishment." Science, 305, 1254–1258.
Rabin, Matthew. (1993) "Incorporating Fairness into Game Theory and Economics." The American Economic Review, 83, 1281–1302.
Rotemberg, Julio J. (2008) "Minimally acceptable altruism and the ultimatum game." Journal of Economic Behavior & Organization, 66, 457–476.
Roth, Alvin E. . (1995) "Bargaining Experiments." In: Kagel, John Henry; Roth, Alvin E. (Hg.): The handbook of experimental economics. Princeton, NJ: Princeton Univ. Press ().
Roth, Alvin E., Prasnikar, Vesna, Okuno-Fujiwara, Masahiro, and Shmuel Zamir. (1991) "Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study." The American Economic Review, 81, 1068–1095.
Shapiro, Carl, and Joseph E Stiglitz. (1984) "Equilibrium Unemployment as a Worker Discipline Device." The American Economic Review, 74, 433–444.
Smith, Vernon L. (1962) "An Experimental Study of Competitive Market Behavior." The Journal of Political Economy, 70, 111–137.
Smith, Vernon L. (1964) "Effect of Market Organization on Competitive Equilibrium." The Quarterly Journal of Economics, 78, 182–201.
Teulings, Coen N. (2003) "The contribution of minimum wages to increasing wage inequality." The Economic Journal, 113, 801–833.
Available Versions of this Item
Social Preferences and Competition. (deposited 10. Jul 2012 13:07)
- Social Preferences and Competition. (deposited 18. Jan 2010 21:04) [Currently Displayed]