Social preferences and competition

Schmidt, Klaus M. (2011): Social preferences and competition. In: Journal of Money, Credit and Banking, Vol. 43, No. Suppl. 1: pp. 207-231

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. Forthcoming) suggest that competition forces people to behave as if they were purely self-interested. We qualify this view. Social preferences tend to be irrelevant 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: Journal article
• Faculties: Economics; Economics > Chairs > Seminar for Economic Theory
• Subjects: 300 Social sciences > 330 Economics
• Language: English