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Social Preferences and Competition

Klaus Schmidt ()

Discussion Papers in Economics from University of Munich, Department of Economics

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. 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.

Keywords: Social preferences; competition; separability; incomplete contracts; asset markets; labor markets (search for similar items in EconPapers)
JEL-codes: C9 D5 J0 (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-bec, nep-com, nep-exp and nep-hpe
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Related works:
Journal Article: Social Preferences and Competition (2011)
Working Paper: Social preferences and competition (2011)
Working Paper: Social Preferences and Competition (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenec:11313

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