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Does Fairness Prevent Market Clearing? An Experimental Investigation

Does Fairness Prevent Market Clearing? An Experimental Investigation Abstract This paper reports the results of an experiment that was designed to test the impact of fairness on market prices. Prices were determined in a one-sided oral auction, with buyers as price-makers. Upon acceptance of an offer, sellers determined the quality of the good. Buyers offered prices that were substantially above the market-clearing level and expected sellers to respond with high quality levels. This expectation was, on average, confirmed by the behavior of sellers. These results provide, therefore, experimental support for the fair wage-effort theory of involuntary unemployment. * " This paper is part of a research project (No. 8327) on equilibrium unemployment financed by the Austrian Science Foundation. We would like to thank W. Güth, J. D. Hey, L. F. Katz, G. Loomes, and two anonymous referees for helpful comments. In addition, we thank Ulrike Freisleben and Sylvia Staudinger for their participation in the organization of the experiments. This content is only available as a PDF. © 1993 by the President and Fellows of Harvard College and The Massachusetts Institute of Technology http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Quarterly Journal of Economics Oxford University Press

Does Fairness Prevent Market Clearing? An Experimental Investigation

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References (12)

Publisher
Oxford University Press
Copyright
© 1993 by the President and Fellows of Harvard College and The Massachusetts Institute of Technology
ISSN
0033-5533
eISSN
1531-4650
DOI
10.2307/2118338
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper reports the results of an experiment that was designed to test the impact of fairness on market prices. Prices were determined in a one-sided oral auction, with buyers as price-makers. Upon acceptance of an offer, sellers determined the quality of the good. Buyers offered prices that were substantially above the market-clearing level and expected sellers to respond with high quality levels. This expectation was, on average, confirmed by the behavior of sellers. These results provide, therefore, experimental support for the fair wage-effort theory of involuntary unemployment. * " This paper is part of a research project (No. 8327) on equilibrium unemployment financed by the Austrian Science Foundation. We would like to thank W. Güth, J. D. Hey, L. F. Katz, G. Loomes, and two anonymous referees for helpful comments. In addition, we thank Ulrike Freisleben and Sylvia Staudinger for their participation in the organization of the experiments. This content is only available as a PDF. © 1993 by the President and Fellows of Harvard College and The Massachusetts Institute of Technology

Journal

The Quarterly Journal of EconomicsOxford University Press

Published: May 1, 1993

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