Testing the Endowment Effect for Default Rules

Isabel Marcin () and Andreas Nicklisch
Additional contact information
Isabel Marcin: Max Planck Institute for Research on Collective Goods, Bonn
Andreas Nicklisch: University of Hamburg, School of Business, Economics and Social Science & Max Planck Institute for Research on Collective Goods, Bonn

No 2014_01, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: This paper explores potential endowment effects of contractual default rules. For this purpose, we analyze the Hadley liability default clause in a model of bilateral bargaining of lotteries against safe options. The liability default clause determines the right for the safe payoff option. We test the model in series of laboratory experiments. The results reveal a substantial willingness-to-accept to willingness-to-pay gap for the right to change lotteries against safe options. Even if we apply the incentive compatible Becker-DeGroot-Marschak value elicitation mechanism, there is a significant gap indicating a robust endowment effect caused by default rules. Differences of expected values of the lotteries and the safe options consistently decrease the gaps. Implications for applications of default rules in the law are discussed.

Keywords: lotteries; Default rules; Endowment effect (search for similar items in EconPapers)
JEL-codes: C91 K00 K12 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-exp and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.coll.mpg.de/pdf_dat/2014_01online.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2014_01

Access Statistics for this paper

More papers in Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods Contact information at EDIRC.
Bibliographic data for series maintained by Marc Martin ().