Can real-effort investments inhibit the convergence of experimental markets?

Timothy N. Cason, Lata Gangadharan, Nikos Nikiforakis

    Research output: Contribution to journalArticle

    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.

    Original languageEnglish (US)
    Pages (from-to)97-103
    Number of pages7
    JournalInternational Journal of Industrial Organization
    Volume29
    Issue number1
    DOIs
    StatePublished - Jan 1 2011

    Fingerprint

    Costs
    Productivity
    Experimental markets
    Seller
    Buyers
    Productivity shocks
    Bilateral bargaining
    Trading behavior
    Cost of production
    Cost allocation

    Keywords

    • Posted-offer markets
    • Property rights
    • Random shock
    • Real effort
    • Surplus creation

    ASJC Scopus subject areas

    • Industrial relations
    • Aerospace Engineering
    • Strategy and Management
    • Industrial and Manufacturing Engineering

    Cite this

    Can real-effort investments inhibit the convergence of experimental markets? / Cason, Timothy N.; Gangadharan, Lata; Nikiforakis, Nikos.

    In: International Journal of Industrial Organization, Vol. 29, No. 1, 01.01.2011, p. 97-103.

    Research output: Contribution to journalArticle

    Cason, Timothy N. ; Gangadharan, Lata ; Nikiforakis, Nikos. / Can real-effort investments inhibit the convergence of experimental markets?. In: International Journal of Industrial Organization. 2011 ; Vol. 29, No. 1. pp. 97-103.
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