Behavioral Efficiency II: A Simple Laboratory Demonstration

Ronald Harstad

No 1121, Working Papers from Department of Economics, University of Missouri

Abstract: Laboratory experiments reporting on shortfalls from allocative efficiency of allocation mechanisms depend on the induced-values methodology, which cannot be extended to the field. Harstad [2011] proposes to observe efficiency of allocation mechanisms without knowing motivations via behavior in appropriately designed aftermarkets. This paper demonstrates the approach in a highly simplified economy: allocation of a single unit of an abstract commodity. In the context studied, second-price auctions are observed to yield significantly greater behavioral inefficiencies than first-price auctions, both in terms of frequency of behaviorally inefficient outcomes, and in terms of the expected size of gains from aftermarket trade missed by the auction itself. The design is shown to be field-ready.

Keywords: behavioral efficiency; field experiment methodology; allocative efficiency; efficiency of auctions; aftermarkets (search for similar items in EconPapers)
JEL-codes: C9 C93 D01 D03 D46 D61 (search for similar items in EconPapers)
Pages: 10 pgs.
Date: 2011-10-09
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Citations: View citations in EconPapers (1)

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