CeDEx
Centre for Decision Research and Experimental Economics

CeDEx workshop - Ron Harstad (University of Missouri)

Date(s)
Wednesday 13th May 2015 (14:00-15:00)
Description

Discerning Efficiency Shortfalls Without Knowing Valuations

Abstract: Laboratory experiments employing an induced-values methodology often report on allocative efficiencies observed. That methodology requires experimenters know subjects’ motivations precisely, questionable in laboratory experiments, impossible in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An allocation mechanism’s outcome is defined to be behaviourally efficient if an appropriate aftermarket is actually appended to the mechanism and measures at most a negligible size of remaining mutually beneficial gains. I specify methodological requirements for an appropriate aftermarket. A first demonstration observes significantly larger behavioral inefficiencies in second- than in first-price auctions. A simple field demonstration indicates when a public-good increase can be observed to cover marginal cost to subjects’ mutual benefit, without knowing valuations. A wide variety of empirical economic-policy studies can utilize this methodology to observe comparative evidence of alternative policies’ allocative efficiency shortfalls.

 

Keywords: behavioral efficiency, aftermarkets,field experiment methodology, allocative efficiency, empirical political economy, valuation revelation

 

 

 

Centre for Decision Research and Experimental Economics

Sir Clive Granger Building
University of Nottingham
University Park
Nottingham, NG7 2RD

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