Efficiency Measurement via Revealed Thresholds, Without Knowing Valuations

Ronald Harstad

No 1405, Working Papers from Department of Economics, University of Missouri

Abstract: Laboratory experiments employing an induced-values methodology often report on allocative efficiencies observed. That methodology requires experimenters know subjects’ motivations precisely, questionable in labs, impossible in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An allocation mechanism’s outcome is defined to be behaviorally efficient if an appropriate aftermarket is actually appended to the mechanism and measures at most a negligible size of remaining mutually beneficial gains. Methodological requirements for an appropriate aftermarket are specified. A first demonstration observes more frequent and ex-ante 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’ allocativeefficiency shortfalls.

Keywords: revealed thresholds; behavioral efficiency; aftermarkets; field experiment methodology; allocative efficiency; empirical political economy; valuation revelation (search for similar items in EconPapers)
JEL-codes: C9 C93 D01 D03 D46 D61 (search for similar items in EconPapers)
Pages: 41 pgs.
Date: 2014-02-02, Revised 2016-03-01
New Economics Papers: this item is included in nep-cbe and nep-exp
Note: This paper combines and updates work in WP11-20 & WP11-21
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Working Paper: Efficiency Measurement via Revealed Thresholds, Without Knowing Valuations (2016)
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