Can Real-Effort Investments Inhibit the Convergence of Experimental Markets?

Timothy Cason, Lata Gangadharan () and Nikos Nikiforakis ()

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: Evidence shows that real-effort investments can affect bilateral bargaining outcomes. This paper investigates whether similar investments can inhibit equilibrium convergence of experimental markets. In one treatment, sellers relative effort affects the allocation of production costs, but a random productivity shock ensures that the allocation is not necessarily equitable. In another treatment, sellers effort increases the buyers valuation of a good. We find that effort investments have a short-lived impact on trading behavior when sellers effort benefits buyers, but no effect when effort determines cost allocation. Efficiency rates are high and do not differ across treatments.

Keywords: Property Rights; Real Effort; Posted Offer Markets; Random Shock; Surplus Creation (search for similar items in EconPapers)
JEL-codes: C90 D4 L10 (search for similar items in EconPapers)
Pages: 33
Date: 2010-01
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Can real-effort investments inhibit the convergence of experimental markets? (2011)
Working Paper: Can Real?Effort Investments Inhibit the Convergence of Experimental Markets? (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1232

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