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Do Legal Standards Affect Ethical Concerns of Consumers?

David Danz (), Dirk Engelmann () and Dorothea Kübler
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Dorothea Kübler: WZB Berlin & TU Berlin

No 234, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: To address the impact of regulation on ethical concerns of consumers, we study the example of minimum wages. In our experimental market, consumers have monopsony power, firms set prices and wages, and workers are passive recipients of a wage payment. We find that the majority of consumers occasionally deviate from their self-interest and that markets with such consumers exhibit substantially higher wages. Consumers implement fair allocations using two distinct strategies: they split their demand equally between firms, or they buy all units from the firm with the higher price and higher wage. The two strategies can be captured by maximin preferences and indirect reciprocity in Charness and Rabin’s (2002) reciprocal fairness model. Introducing a minimum wage in a market raises average wages despite its significant crowding out effects on consumers’ fairness concerns. Abolishing a minimum wage crowds in consumer fairness concerns, but crowding in is not sufficient to avoid overall negative effects on workers’ wages.

Keywords: fairness; consumer behavior; minimum wage; crowding out; experimental economics (search for similar items in EconPapers)
JEL-codes: C72 C92 D83 D84 (search for similar items in EconPapers)
Date: 2020-04-06
New Economics Papers: this item is included in nep-exp
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Related works:
Working Paper: Do Legal Standards Affect Ethical Concerns of Consumers? (2008) Downloads
Working Paper: Do Legal Standards Affect Ethical Concerns of Consumers? (2007) Downloads
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