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Abstract:
Experimental economists are leaving the reservation. They are recruiting subjects in the field rather than in the classroom, using field goods rather than induced valuations, and using field context rather than abstract terminology in instructions. We argue that there is something methodologically fundamental behind this trend. Field experiments differ from laboratory experiments in many ways. Although it is tempting to view field experiments as simply less controlled variants of laboratory experiments, we argue that to do so would be to seriously mischaracterize them. What passes for "control" in laboratory experiments might in fact be precisely the opposite if it is artificial to the subject or context of the task. We propose six factors that can be used to determine the field context of an experiment: the nature of the subject pool, the nature of the information that the subjects bring to the task, the nature of the commodity, the nature of the task or trading rules applied, the nature of the stakes, and the environment that subjects operate in.

Field experiments

Abstract:
We conducted a natural field experiment to explore the effect of price changes on charitable contributions. To operationalize our tests, we examine whether an offer to match contributions to a non-profit organization changes the likelihood and amount that an individual donates. Direct mail solicitations were sent to over 50,000 prior donors. We find that the match offer increases both the revenue per solicitation and the probability that an individual donates. While comparisons of the match treatments and the control group consistently reveal this pattern, larger match ratios (i.e., $3:$1 and $2:$1) relative to smaller match ratios ($1:$1) had no additional impact. The results have clear implications for practitioners in the design of fundraising campaigns and provide avenues for future empirical and theoretical work on charitable giving. Further, the data provide an interesting test of important methods used in cost-benefit analysis.

Abstract:
We conducted a natural field experiment to explore the effect of price changes on charitable contributions. To operationalize our tests, we examine whether an offer to match contributions to a non-profit organization changes the likelihood and amount that an individual donates. Direct mail solicitations were sent to over 50,000 prior donors. We find that the match offer increases both the revenue per solicitation and the probability that an individual donates. While comparisons of the match treatments and the control group consistently reveal this pattern, larger match ratios (i.e., $3:$1 and $2:$1) relative to smaller match ratios ($1:$1) had no additional impact. The results have clear implications for practitioners in the design of fundraising campaigns and provide avenues for future empirical and theoretical work on charitable giving. Further, the data provide an interesting test of important methods used in cost-benefit analysis.

charitable giving, fundraising, matching grants, altruism, contingent valuation method

Abstract:
This study explores the linkages between trade policy, corruption, and environmental policy. We begin by presenting a theoretical model that produces several testable predictions: i) trade liberalization raises the stringency of environmental policy; ii) corruption reduces environmental policy stringency; and iii) the effect of trade liberalization (corruption) on environmental policy is conditional on the level of corruption (trade openness). Using panel data from a mix of 30 developed and developing countries from 1982-1992, these predictions are broadly supported.

lobbying, political economy, protectionism, trade and the environment, pollution tax

Abstract:
We examine experimentally how Chief Executive Officers (CEOs) respond to incentives and how they provide incentives in situations requiring trust and trustworthiness. As a control we compare the behavior of CEOs with the behavior of students. We find that CEOs are considerably more trusting and exhibit more trustworthiness than students - thus reaching substantially higher efficiency levels than students. Moreover, we find that, for CEOs as well as for students, incentives based on explicit threats to penalize shirking backfire by inducing less trustworthy behavior - giving rise to hidden costs of incentives. However, the availability of penalizing incentives also creates hidden returns: If a principal expresses trust by voluntarily refraining from implementing the punishment threat, the agent exhibits significantly more trustworthiness than if the punishment threat is not available. Thus trust seems to reinforce trustworthy behavior. Overall, trustworthiness is highest if the threat to punish is available but not used, while it is lowest if the threat to punish is used. Paradoxically, however, most CEOs and students use the punishment threat, although CEOs use it significantly less.

Abstract:
A bulk of recent evidence suggests that important disparities exist between willingness to pay and compensation demanded for the same good. This paper extends and refutes the generality of these findings by going to a well-functioning marketplace and allowing consumers to swap sports memorabilia. In support of the received literature, I present field evidence that suggests an inefficiently low number of trades occur for naive traders, suggesting reference-dependent preferences. In contrast, this anomaly is not evident for consumers that have significant trading experience. These results uncover important successes and failures of the theoretical literature, and provide challenges for both neoclassical and reference-dependent theorists.

Abstract:
Does individual behavior in a laboratory setting provide a reliable indicator of behavior in a naturally occurring setting? We consider this general methodological question in the context of eliciting risk attitudes. The controls that are typically employed in laboratory settings, such as the use of abstract lotteries, could lead subjects to employ behavioral rules that differ from the ones they employ in the field. Since it is field behavior that we are interested in understanding, those controls might be a confound in themselves if they result in differences in behavior. We find that the use of artificial monetary prizes provides a reliable measure of risk attitudes when the natural counterpart outcome has minimal uncertainty, but that it can provide an unreliable measure when the natural counterpart outcome has background risk. These results are consistent with conventional expected utility theory for the effects of background risk on attitudes to risk. Behavior tended to be risk-loving when artificial monetary prizes were used or when there was minimal uncertainty in the natural non-monetary outcome. But subjects drawn from the same population were risk-averse when their attitudes were elicited using the natural non-monetary outcome that had some background risk. Theory predicts this effect of background risk, but not the change from risk-loving to risk-aversion.

Risk-aversion, field experiments

Abstract:
Neoclassical theory postulates that preferences between two goods are independent of the consumer's current entitlements. Several experimental studies have recently provided strong evidence that this basic independence assumption, which is used in most theoretical and applied economic models to assess the operation of markets, is rarely appropriate. These results, which clearly contradict closely held economic doctrines, have led some influential commentators to call for an entirely new economic paradigm to displace conventional neoclassical theory - e.g., prospect theory, which invokes psychological effects. This paper pits neoclassical theory against prospect theory by investigating three clean tests of the competing hypotheses. In all three cases, the data, which are drawn from nearly 500 subjects actively participating in a well-functioning marketplace, suggest that prospect theory adequately organizes behavior among inexperienced consumers, whereas consumers with intense market experience behave largely in accordance with neoclassical predictions. The pattern of results indicates that learning primarily occurs on the sell side of the market: Agents with intense market experience are more willing to part with their entitlements than lesser-experienced agents.

Abstract:
In settings characterized by imperfect information about an underlying state of nature, but where inferences are made sequentially and are publicly observable, decisions may yield a cascade in which everyone herds on a single choice. While cascades potentially play a role in a variety of settings, from technology adoption to social processes such as mate selection, understanding cascade phenomena is imperative for financial markets. Previous empirical efforts studying cascade formation have used both naturally occurring data and laboratory experiments. In this paper, we combine one of the attractive elements of each line of research - observation of market professionals in a controlled environment - to push the investigation of cascade behavior into several new directions. Numerous empirical insights are obtained; perhaps most importantly, we find that market professionals behave quite differently than a control group of student subjects. In particular, market professionals, more so than students, base their decisions on the quality of the public signal, leading them to be more likely to disregard bad signals. And, unlike in the case with students, for market professionals, the propensity to be Bayesian does not differ significantly across the gain and loss domains. These results have important implications in both a positive and normative sense.

Herd Behavior, Futures Traders, Experiments

Abstract:
This paper uses a dynamic model with asymmetric players to explore the question: in a second-best world, should environmental regulations for transboundary pollutants be carried out locally or centrally? We find that combined payoffs are larger with decentralized control if payoffs are sufficiently heterogeneous and initial pollution stocks are sufficiently small. This result obtains because the central authority applies one shadow price to pollution (i.e., it uses uniform standards), whereas local authorities use different shadow prices, and therefore different standards.

Abstract:
This study presents an overview of modern field experiments and their usage in economics. Our discussion focuses on three distinct periods of field experimentation that have influenced the economics literature. The first might well be thought of as the dawn of "field" experimentation: the work of Neyman and Fisher, who laid the experimental foundation in the 1920s and 1930s by conceptualizing randomization as an instrument to achieve identification via experimentation with agricultural plots. The second, the large-scale social experiments conducted by government agencies in the mid-twentieth century, moved the exploration from plots of land to groups of individuals. More recently, the nature and range of field experiments has expanded, with a diverse set of controlled experiments being completed outside of the typical laboratory environment. With this growth, the number and types of questions that can be explored using field experiments has grown tremendously. After discussing these three distinct phases, we speculate on the future of field experimental methods, a future that we envision including a strong collaborative effort with outside parties, most importantly private entities.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
This study uses field experiments to investigate empirically the informational role of professional certifiers. We explore a certification market that has evolved in such a manner that provides a unique opportunity to measure the information provision of a monopolist certifier and that of subsequent entrants. Empirical results suggest that the certification industry plays a dual role: it reduces the information asymmetry between informed and uninformed parties and generates new information to all market players. Interestingly, the second role isn't conspicuous until the certification market becomes competitive, as the monopolist certifier credibly distinguishes lemons from non-lemons for the uninformed party, but adds little information to experienced agents. On the contrary, new entrants adopt more precise signals and use finer grading cutoffs to differentiate from the incumbent. Our measured differentiated grading cutoffs map consistently into prevailing market prices, suggesting that the market recognizes differences across multiple grading criteria.

Professional certificate, information, uncertainty

Abstract:
Recent studies suggest a considerable amount of horizontal strategic interaction amongst governments exists. The empirical approach in these studies typically relies on estimating reaction functions in a uni-dimensional policy framework, where a nonzero slope estimate suggests strategic interactions exist. While this framework may be useful within certain contexts, it is potentially too restrictive; for example, in models of resource competition, locales may use multiple instruments to attract agents, leading to strategic interaction across policy instruments. In this study, we develop a theoretic construct that includes yardstick competition in a world of multi-dimensional policies to show that while a zero-sloped reaction function may exist for any particular policy, this does not necessarily imply the absence of strategic interactions. We empirically examine the implications of the model using US state-level panel data over the period 1977-1994. Empirical results suggest important cross-policy strategic interactions exist, lending support in favor of the multi-dimensional framework.

Political Economy, Resource Competition, Strategic Policymaking, Yardstick Competition

Abstract:
The Hawthorne effect, a concept familiar to all students of social science, has had a profound influence both on the direction and design of research over the past 75 years. The Hawthorne effect is named after a landmark set of studies conducted at the Hawthorne plant in the 1920s. The first and most influential of these studies is known as the Illumination Experiment. Both academics and popular writers commonly summarize the results as showing that every change in light, even those that made the room dimmer, had the effect of increasing productivity. The data from the illumination experiments, however, were never formally analyzed and were thought to have been destroyed. Our research has uncovered these data. We find that existing descriptions of supposedly remarkable data patterns prove to be entirely fictional. There are, however, hints of more subtle manifestations of a Hawthorne effect in the original data.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
The goal of this paper is to provide an investigation of several approaches to valuing ecosystem services and to contribute additional techniques which may be used in evaluating `green' GDP accounts. Our estimates focus on the
ecosystem as a productive economic input, not a stock which is depreciated or depleted over time; as such, it differs with other concepts more frequently employed in green GDP accounting. Most of our results are derived from the analytical fiction that a single owner of the biosphere establishes a market for all ecological resources. This monopolist then appropriates all rents from the human population. The maximum amount the monopolist charges is first assumed to be world gross product less the global human subsistence level. In addition, we examine the excess rents available in factor markets using the assumption of weak complementarity between factor inputs and ecosystem services. We also provide more conservative estimates of the value of ecosystem services by investigating the sustainable price the monopolist could charge the global population and by exploring the effects of compensating wage differentials and a non-monopolist owner of the ecosystem.

Ecosystem services, Monopolist, Excess rents, Maximum surplus, Weak complementarity

Abstract:
This study develops theory and uses a door-to-door fundraising field experiment to explore the economics of charity. We approached nearly 5000 households, randomly divided into four experimental treatments, to shed light on key issues on the demand side of charitable fundraising. Empirical results are in line with our theory: in gross terms, our lottery treatments raised considerably more money than our voluntary contributions treatments. Interestingly, we find that a one standard deviation increase in female solicitor physical attractiveness is similar to that of the lottery incentive - the magnitude of the estimated difference in gifts is roughly equivalent to the treatment effect of moving from our theoretically most attractive approach (lotteries) to our least attractive approach (voluntary contributions).

Abstract:
Using a unique sample of new Ph.D. economists in 1987 and 1997, we examine how job seekers and their employers alter their search strategies in strong versus weak markets. The 1987 academic market was strong while the 1997 market was much weaker. A multimarket theory of optimal search suggests that job seekers will respond to a weakening market by lowering their reservation utility. This in turn affects their search strategies at the extensive margin (which markets to enter) and the intensive margin (how many applications to submit per market). Meanwhile, employers respond to the weakening market by raising their hiring standards. The combination of strategies on the supply and demand sides suggest that high quality applicants will obtain an increased share of academic interviews in weak markets while applicants from weaker schools will increasingly secure interviews outside of the academic market. Empirical results show that in the bust market, graduates of elite schools shifted their search strategies to include weaker academic institutions, while graduates of lower ranked schools shifted their applications away from academia and toward the business sector. In bust conditions, academic institutions increasingly concentrate their interviews on elite school graduates, women and U.S. residents.

search, PhD labor market, applications, interviews, visits, offers, boom and bust, academia, government, business

Abstract:
Field experiments occupy a middle ground between laboratory experiments and naturally occurring field data. The idea is to perform a controlled experiment that captures important characteristics of the real world. Relative to traditional empirical economics, field experiments provide an advantage by creating exogenous variation in the variables of interest, allowing us to establish causality rather than mere correlation. Relative to a laboratory experiment, a field experiment gives up some of the control that a laboratory experimenter may have over her environment in exchange for increased realism.

field experiments

Abstract:
In this Paper, we explore to what extent secondary policy issues are influenced by electoral incentives. We develop a political agency model in which a politician decides on both a frontline policy issue, such as the level of public spending, and a secondary policy issue, such as environmental policy. The model shows under which conditions the incumbent finds it worthwhile to manipulate the secondary policy to attract additional votes to their platform. We test the predictions of the model using state-level panel data on Gubernatorial environmental policy choices over the years 1960-2000. In contrast to the popular view that choices on secondary policy instruments are largely determined by lobbying, we find strong effects of electoral incentives on environmental policy.

Elections, environmental policy, lobbying, term limits

Abstract:
In this paper we explore to what extent secondary policy issues are influenced by electoral incentives. We develop a political agency model in which a politician decides on both a frontline policy issue, such as the level of public spending, and a secondary policy issue, such as environmental policy. The model shows under which conditions the incumbent finds it worthwhile to manipulate the secondary policy to attract additional votes to his platform. We test the predictions of the model using state-level panel data on Gubernatorial environmental policy choices over the years 1960-2000. In contrast to the popular view that choices on secondary policy instruments are largely determined by lobbying, we find strong effects of electoral incentives on environmental policy.

Abstract:
This study explores the formation of buyer-seller relationships in markets with observable quality. We develop a model that explains why relationships form in equilibrium within such markets. A key feature of our model is that as individuals gain experience in the marketplace, they resolve uncertainty over unobserved bargainer types. Relationships thus form as a means to reduce such transactions costs and uncertainty. We explore the usefulness of our theory by using a battery of simulations and experimental treatments. Overall, we find that our theoretical predictions are largely confirmed. Interestingly, the quantitative impact of relationships on overall market efficiency depends critically on the extent to which market structure affects the matching of buyers and sellers that could profitably transact. In certain important cases, a greater number of buyer-seller relationships can reduce market efficiency.

Field experiments, pricing, market structure

Abstract:
Laboratory experiments have been used extensively in economics in the past several decades to lend both positive and normative insights into a myriad of important economic issues. This study discusses a related approach that has increasingly grown in prominence of late - field experiments. I argue that field experiments serve as a useful bridge between data generated in the lab and empirical studies using naturally-occurring data. In discussing this relationship, I highlight that field experiments can yield important insights into economic theory and provide useful guidance to policymakers. I also draw attention to an important methodological contribution of field experiments: they provide an empirical account of behavioral principles that are shared across different domains. In this regard, at odds with conventional wisdom, I argue that representativeness of the environment, rather than representative of the sampled population, is the most crucial variable in determining generalizability of results for a large class of experimental laboratory games.

Abstract:
This study uses a controlled experiment to explore whether there are gender differences in selecting into competitive environments across two distinct societies: the Maasai in Tanzania and the Khasi in India. One unique aspect of these societies is that the Maasai represent a textbook example of a patriarchal society whereas the Khasi are matrilineal. Similar to the extant evidence drawn from experiments executed in Western cultures, Maasai men opt to compete at roughly twice the rate as Maasai women. Interestingly, this result is reversed amongst the Khasi, where women choose the competitive environment more often than Khasi men, and even choose to compete weakly more often than Maasai men. We view these results as potentially providing insights into the underpinnings of the factors hypothesized to be determinants of the observed gender differences in selecting into competitive environments.

Abstract:
Previous empirical studies of information cascades use either naturally occurring data or laboratory experiments with student subjects. We combine attractive elements from each of these lines of research by observing market professionals from the Chicago Board of Trade (CBOT) in a controlled environment. As a baseline, we compare their behavior to student choices in similar treatments. We further examine whether, and to what extent, cascade formation is influenced by both private signal strength and the quality of previous public signals, as well as decision heuristics that differ from Bayesian rationality. Analysis of over 1,500 individual decisions suggests that CBOT professionals are better able to discern the quality of public signals than their student counterparts. This leads to much different cascade formation. Further, while the behavior of students is consistent with the notion that losses loom larger than gains, market professionals are unaffected by the domain of earnings. These results are important in both a positive and normative sense.

Abstract:
The tontine, which is an interesting mixture of group annuity, group life insurance, and lottery, has a peculiar place in economic history. In the seventeenth and eighteenth centuries it played a major role in raising funds to finance public goods in Europe, but today it is rarely encountered outside of murder mysteries. This study provides a formal model of individual contribution decisions under a tontine mechanism. We analyze the performance of tontines and compare them to another popular fundraising scheme used today by both government and charitable fundraisers: lotteries. Our major theoretical results are that (i) the optimal tontine for agents with identical valuations of the public good consists of all agents receiving a fixed "prize" amount in the first period equal to a percentage of their total contribution, (ii) contribution levels in the optimal tontine are identical to those of risk-neutral agents in an equivalently valued single prize lottery, (iii) contribution levels for the optimal tontine are independent of risk-aversion, and thereby outperform lotteries when agents are risk-averse, (iv) if agents are sufficiently asymmetric in their valuation of the public good, equilibrium contribution levels are larger under tontines than any lottery. In particular, one can obtain full participation in the tontine mechanism compared to only partial participation in a lottery. These insights highlight that the tontine institution can be a useful tool for fundraisers in the future.

Abstract:
Auction theory is one of the richest areas of research in economics over the past three decades. Yet whether and to what extent the introduction of secondary resale markets influences bidding behavior in sealed bid first-price auctions remains under researched. This study begins by developing theory to explore auctions with resale when private values are uncertain. We put our theory to the test by examining both field data and experimental data from the lab. Our field data are from a unique data set that includes nearly 3,000 auctions (over 10,000 individual bids) for cutting rights of standing timber in British Columbia from 1996-2000. In comparing bidding patterns across agents who are likely to have resale opportunities with those who likely do not, we find evidence that is consistent with our theoretical predictions. Critical evaluation of the reduced-form bidding model, however, reveals that sharp tests of the theoretical predictions are not possible because several other differences may exist across these bidder types. We therefore use a laboratory experiment to examine if the resale opportunity by itself can have the predicted effect. We find that while it does have the predicted effect, a theoretical model based on risk-averse bidders explains the overall data patterns more accurately than a model based on risk-neutral bidders. More generally, the paper highlights the inferential power of combining naturally occurring data with laboratory data.

Abstract:
While contingent valuation remains the only option available for measurement of total economic value of nonmarketed goods, the method has been criticized due to its hypothetical nature. We analyze field experimental data to evaluate two ex ante approaches to attenuating hypothetical bias, directly comparing value statements across four distinct referenda: hypothetical, "cheap talk", "consequential", and real. Our empirical evidence suggests two major findings: hypothetical responses are significantly different from real responses; and responses in the consequential and cheap talk treatments are statistically indistinguishable from real responses. We review the potential for each method to produce reliable results in the field.

Abstract:
In this paper we examine temporal properties of eleven natural resource real price series from 1870-1990 by employing a Lagrangian Multiplier unit root test that allows for two endogenously determined structural breaks with and without a quadratic trend. Contrary to previous research, we find evidence against the unit root hypothesis for all price series. Our findings support characterizing natural resource prices as stationary around deterministic trends with structural breaks. This result is important in both a positive and normative sense. For example, without an appropriate understanding of the dynamics of a time series, empirical verification of theories, forecasting, and proper inference are potentially fruitless. More generally, we show that both pre-testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy.

Abstract:
The lack of robust evidence showing that hypothetical behavior directly maps into real actions remains a major concern for proponents of stated preference nonmarket valuation techniques. This article explores a new statistical approach to link actual and hypothetical statements. Using willingness-to-pay field data on individual bids from sealed-bid auctions for a $350 baseball card, our results are quite promising. Estimating a stochastic frontier regression model that makes use of data that any contingent valuation survey would obtain, we derive a bid function that is not statistically different from the bid function obtained from subjects in an actual auction. If other data can be calibrated similarly, this method holds significant promise since an appropriate calibration scheme, ex ante or ex post, can be invaluable to the policy maker that desires more accurate estimates of use and nonuse values for nonmarket goods and services.

Abstract:
This study designs a natural field experiment linked to a controlled laboratory experiment to examine the effectiveness of matching gifts and challenge gifts, two popular strategies used to secure a portion of the $200 billion annually given to charities. We find evidence that challenge gifts positively influence contributions in the field, but matching gifts do not. Methodologically, we find important similarities and dissimilarities between behavior in the lab and the field. Overall, our results have clear implications for fundraisers and provide avenues for future empirical and theoretical work on charitable giving.

fundraising, threshold public goods, charitable giving, field experiments

Abstract:
Recent auction theory and experimental results document strategic demand reduction by bidders in uniform-price auctions. The present article extends this area of research to consider the effects of varying the number of bidders. Our theoretical model predicts that demand reduction should decrease with an increase in the number of bidders. Considerable demand reduction remains even in the asymptotic limit, although truthful bidding yields profits very close to those of equilibrium play. We experimentally confirm several of our predictions by examining bidding behavior of subjects in an actual marketplace, auctioning dozens of sportscards using both uniform-price and Vickrey auction formats.

Abstract:
This study develops a model of endogenous growth based on increasing returns due to firms' technology choices. Particular attention is paid to the implications of these choices, combined with the substitution of capital for labor, on economic growth in a general equilibrium model in which the R&D sector produces machines to be used for the sector producing final goods. We show that incorporating oligopolistic competition in the sector producing finals goods into a general equilibrium model with endogenous technology choice is tractable, and we explore the equilibrium path analytically. The model illustrates a novel manner in which sustained per capita growth of consumption can be achieved - through continuous adoption of new technologies featuring the substitution between capital and labor. Further insights of the model are that during the growth process, the size of firms producing final goods increases over time, the real interest rate is constant, and the real wage rate increases over time.

Abstract:
This paper pits neoclassical theory against prospect theory by investigating several clean tests of the competing hypotheses. Consistent with previous work, the field experimental data suggest that prospect theory adequately organizes behavior among inexperienced consumers, whereas consumers with intense market experience behave largely in accordance with neoclassical predictions. The data indicate that the convergence in values occurs entirely because of lower Hicksian equivalent surplus values.

Abstract:
The role of the market in mitigating and mediating various forms of behavior is perhaps the central issue facing behavioral economics today. This study designs a field experiment that is explicitly linked to a controlled laboratory experiment to examine whether, and to what extent, social preferences influence outcomes in actual market transactions. While agents drawn from a well-functioning marketplace behave in accord with social preference models in tightly controlled laboratory experiments, when they are observed in their naturally occurring settings, their behavior approaches what is predicted by self-interest theory. In the limit, much of the observed behavior in the marketplace that is consistent with social preferences is due to reputational concerns: suppliers who expect to have future interactions with buyers provide higher product quality only when the buyer can verify quality via a third-party certifier. The data also speak to theories of how reputation effects enhance market performance. In particular, reputation and the monitoring of quality are found to be complements, and findings suggest that the private market can solve the lemons problem through third-party verification.

Abstract:
The role of the market in mitigating and mediating various forms of behavior is perhaps the central issue facing behavioral economics today. This study designs a field experiment that is explicitly linked to a controlled laboratory experiment to examine whether, and to what extent, social preferences influence outcomes in actual market transactions. While agents drawn from a well-functioning marketplace behave in accord with social preference models in tightly controlled laboratory experiments, when observed in their naturally occurring settings their behavior approaches what is predicted by self-interest theory. In the limit, much of the observed behavior in the marketplace that is consistent with social preferences is due to reputational concerns: suppliers who expect to have future interactions with buyers provide higher product quality only when the buyer can verify quality via a third-party certifier. The data also speak to theories of how reputation effects enhance market performance. In particular, reputation and the monitoring of quality are found to be complements, and findings suggest that the private market can solve the lemons problem through third party verification.

Abstract:
We develop theory and present a suite of theoretically consistent empirical measures to explore the extent to which market intervention inadvertently alters resource allocation in a sequentialmove principal/agent game. We showcase our approach empirically by exploring the extent to which the U.S. Endangered Species Act has altered land development patterns. We report evidence indicating significant acceleration of development directly after each of several events deemed likely to raise fears among owners of habitat land. Our preferred estimate suggests an overall acceleration of land development by roughly one year. We also find from complementary hedonic regression models that habitat parcels declined in value when the habitat map was published, which is consistent with our estimates of the degree of preemption. These results have clear implications for policymakers, who continue to discuss alternative regulatory frameworks for species preservation. More generally, our modeling strategies can be widely applied -- from any particular economic environment that has a sequential-move nature to the narrower case of the political economy of regulation.

Abstract:
Recent discoveries in behavioral economics have led scholars to question the underpinnings of neoclassical economics. We use insights gained from one of the most influential lines of behavioral research -- gift exchange -- in an attempt to maximize worker effort in two quite distinct tasks: data entry for a university library and door-to-door fundraising for a research center. In support of the received literature, our field evidence suggests that worker effort in the first few hours on the job is considerably higher in the gift treatment than in the non-gift treatment. After the initial few hours, however, no difference in outcomes is observed, and overall the gift treatment yielded inferior aggregate outcomes for the employer: with the same budget we would have logged more data for our library and raised more money for our research center by using the market-clearing wage rather than by trying to induce greater effort with a gift of higher wages.

Abstract:
This study examines social preferences in three distinct field environments. In the first field setting, I allow consumers of all age and education levels to participate in one-shot and multiple-shot public goods games in a well-functioning marketplace. The second field study, an actual university capital campaign, gathers data from mail solicitations sent to 2,000 Central Florida residents. In the third field experiment, I examine data from an uncontrolled environment, a television gameshow, which closely resembles the classic prisoner's dilemma game. Several insights emerge; perhaps the most provocative is that age and social preferences appear linked.

Abstract:
We examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain. Using common value auction theory as our guide, we identify naturally occurring settings in which one can test the theory. Experienced agents bidding in familiar roles do not fall prey to the winner's curse. Yet, experienced agents fall prey to the winner's curse when bidding in an unfamiliar role. We conclude that the theory predicts field behavior well when one is able to identify naturally occurring field counterparts to the key theoretical conditions.

Abstract:
There has been a dramatic increase in the use of experimental methods in the past two decades. An oft-cited reason for this rise in popularity is that experimental methods provide the necessary control to estimate treatment effects in isolation of other confounding factors. We examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain. Using common value auction theory as our guide, we identify naturally occurring settings in which one can test the theory. In our treatments the subjects are not picked at random, as in lab experiments with student subjects, but are deliberately identified by their trading roles in the natural field setting. We find that experienced agents bidding in familiar roles do not fall prey to the winner's curse. Yet, when experienced agents are observed bidding in an unfamiliar role, we find that they frequently fall prey to the winner's curse. We conclude that the theory predicts field behavior well when one is able to identify naturally occurring field counterparts to the key theoretical conditions.

Abstract:
We can think of no question more fundamental to experimental economics than understanding whether, and under what circumstances, laboratory results generalize to naturally occurring environments. In this paper, we extend Levitt and List (2006) to the class of games in which financial payoffs and 'doing the right thing' are not necessarily in conflict. We argue that behaviour is crucially linked to not only the preferences of people, but also the properties of the situation. By doing so, we are able to provide a road map of the psychological and economic properties of people and situations that might interfere with generalizability of laboratory result from a broad class of games.

Abstract:
This study designs a natural field experiment linked to a controlled laboratory experiment to examine the effectiveness of matching gifts and challenge gifts, two popular strategies used to secure a portion of the $200 billion annually given to charities. We find evidence that challenge gifts positively influence contributions in the field, but matching gifts do not. Methodologically, we find important similarities and dissimilarities between behavior in the lab and the field. Overall, our results have clear implications for fundraisers and provide avenues for future empirical and theoretical work on charitable giving.

Abstract:
Stricter environmental regulations are often opposed on the grounds that they will alter equilibrium capital flows. Empirical evidence in this area remains largely unresolved, mainly due to the quite disparate results found in the literature. This paper takes a positive look at the relationship between new manufacturing plant location decisions and environmental regulations by examining data from 11 studies that provide more than 365 observations. One major result from our meta-analysis is that methodological considerations play a critical role in shaping the body of received estimates. Our empirical estimates also lend insights into future research that is necessary before any robust conclusions can be made regarding the effects of environmental regulations on capital flows.

Abstract:
Are individuals expected utility maximizers? This question represents much more than academic curiosity. In a normative sense, at stake are the fundamental underpinnings of the bulk of the last half-century's models of choice under uncertainty. From a positive perspective, the ubiquitous use of benefit-cost analysis across government agencies renders the expected utility maximization paradigm literally the only game in town. In this study, we advance the literature by exploring CEO's preferences over small probability, high loss lotteries. Using undergraduate students as our experimental control group, we find that both our CEO and student subject pools exhibit frequent and large departures from expected utility theory. In addition, as the extreme payoffs become more likely CEOs exhibit greater aversion to risk. Our results suggest that use of the expected utility paradigm in decision making substantially underestimates society's willingness to pay to reduce risk in small probability, high loss events.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
This study develops theory and conducts an experiment to provide an understanding of why people initially give to charities, why they remain committed to the cause, and what factors attenuate these influences. Using an experimental design that links donations across distinct treatments separated in time, we present several insights. For example, we find that previous donors are more likely to give, and contribute more, than donors asked to contribute for the first time. Yet, how these previous donors were acquired is critical: agents who are initially attracted by signals of charitable quality transmitted via an economic mechanism are much more likely to continue giving than agents who were initially attracted by non-mechanism factors.

Abstract:
Models of inequity aversion and fairness have dominated the behavioural economics landscape in the last decade. This study gathers data from 240 subjects exposed to variants of two of the major experimental games - dictator and trust - that are employed to provide important empirical content to these models. With a set of simple laboratory treatments that focus on a manipulation of an important feature of real markets, competition over resources, we show that extant behavioural models are unable to explain data drawn from realistic manipulations of either game. Our empirical results highlight that if placed in an environment wherein socially acceptable actions provide one person with a greater portion of the rents, people will put forth extra effort to secure those rents, to the detriment of the other player. In this manner, when one can earn more than the other player through actions deemed customary, people reveal a preference for equity aversion, not inequity aversion. We propose an alternative modelling approach that can explain these data as well as accommodate other major data patterns observed in the experimental literature.

Equity Aversion, Social Preferences, Social Status

Abstract:
Using sportscard grading as an example, we employ field experiments to investigate empirically the informational role of professional certifiers. In the past 20 years, professional grading of sportscards has evolved in a way that provides a unique opportunity to measure the information provision of a monopolist certifier and that of subsequent entrants. Empirical results suggest three patterns: the grading certification provided by the first professional certifier offers new information to inexperienced traders but adds little information to experienced dealers. This implies that the certification may reduce the information asymmetry between informed and uninformed parties. Second, compared with the incumbent, new entrants adopt more precise signals and use finer grading cutoffs to differentiate from the incumbent. Third, our measured differentiated grading cutoffs map consistently into prevailing market prices, suggesting that the market recognizes differences across multiple grading criteria.

Abstract:
This study examines data drawn from the game show Friend or Foe?, which is similar to the classic prisoner%u2019s dilemma tale: partnerships are endogenously determined, players work together to earn money, after which, they play a one-shot prisoner%u2019s dilemma game over large stakes: varying from $200 to (potentially) more than $22,000. If one were to conduct such an experiment in the laboratory, the cost to gather the data would be well over $350,000. The data reveal several interesting insights; perhaps most provocatively, they suggest that even though the game is played in front of an audience of millions of viewers, there is some evidence consistent with a model of discrimination. The observed patterns of social discrimination are unanticipated, however. For example, there is evidence consistent with the notion that certain populations have a general %u201Cdistaste%u201D for older participants.

Abstract:
Recent empirical work suggests that (i) incomes are converging through time, and (ii) income and pollution levels are linked. This paper weds these two literatures by examining the spatial and temporal distribution of pollution. After establishing that theoretical predictions about whether pollution will converge are critically linked to certain structural parameters, we explore pollution convergence using state-level data on two important pollutants - nitrogen oxides and sulfur oxides - from 1929 to 1999. We find stronger evidence of converging emission rates during the federal pollution control years (1970-1999) than during the local control years (1929-1969). These results suggest that income convergence alone may not be sufficient to induce convergence of pollutant emissions.

Abstract:
Empirical evidence suggesting that a considerable amount of horizontal strategic interaction exists amongst governments is important in light of recent devolutionary trends of many important public programs. The empirical approach in these studies typically relies on estimating reaction functions in a uni-dimensional policy framework, where a nonzero slope estimate is interpreted as evidence in support of strategic interactions. While this framework is a useful representation within certain contexts, it is potentially too restrictive; for example, in models of resource competition, localities may use multiple instruments in their recruiting pursuits, leading to potential strategic interactions across policy instruments. In this study, we first develop a simple theoretic construct that includes resource competition in a world of three-dimensional policy choice. The model suggests that while a zero-sloped reaction function may exist for any particular policy, this does not necessarily imply the absence of strategic interactions. We examine the implications of the model empirically using US state-level panel data over the period 1977-1994. The results suggest that important cross-policy strategic interactions exist, lending support in favor of the multi-dimensional framework, and indicate that uni-dimensional frameworks may present lower bound estimates of the degree of strategic interaction.

Abstract:
Devolution of tasks to local levels of government has recently become a popular agenda item within certain political factions in the US. While one expects the local policymaker to tailor policies to match the preferences of his constituents, critics of local policymaking claim that externalities are ignored and inefficiencies thus arise under local control of certain policies. A primary example concerns the control of pollution, which is known to have adverse effects on neighbouring jurisdictions. Whether localities actually 'race to the bottom' and enact lax environmental policies when given the chance remains an open issue. In this study, we make use of stochastic dominance tests to examine if President Reagan's policy of 'New Federalism' in the early 1980s induced states to lower environmental standards. Among the several environmental measures analysed, we do not find any evidence that the 'race to the bottom' materialized. Indeed, the evidence shows that even during these lean years of federal intervention several indicators of environmental quality at the state level continued to improve.

Abstract:
Despite their current prevalence and historical significance, little is known about the economics of open air markets. This paper uses open air markets as a natural laboratory to provide initial insights into the underlying operation of such markets. Using data on thousands of individual transactions gathered from May 2005- August 2008, I report several insights. First, the natural pricing and allocation mechanism in open air markets is capable of approaching full efficiency, even in quite austere conditions. Yet, a second result highlights the fragility of this finding: allowance of explicit seller communication frustrates market efficiency in a broad array of situations. Making use of insights gained from a "mole" in the marketplace, a third set of results revolves around economic questions pertaining to collusive arrangements that are otherwise quite difficult to investigate. Overall, I find data patterns that are consistent with certain theoretical predictions, as the evidence suggests that i) cheating rates increase as the coalition is expanded, ii) sellers cheat less when they have collusive arrangements in several spatially differentiated markets, and iii) sellers cheat more when they are experiencing periods of abnormally high profits. These results follow from a combination of insights gained from building a bridge between the lab and the naturally-occurring environment. By doing so, the study showcases that in developing a deeper understanding of economic science, it is desirable to take advantage of the myriad settings in which economic phenomena present themselves.

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Abstract:
This study explores the economics of charitable fund-raising. We begin by developing theory that examines the optimal lottery design while explicitly relaxing both risk-neutrality and preference homogeneity assumptions. We test our theory using a battery of experimental treatments and find that our theoretical predictions are largely confirmed. Specifically, we find that single- and multiple-prize lotteries dominate the voluntary contribution mechanism both in total dollars raised and the number of contributors attracted. Moreover, we find that the optimal fund-raising mechanism depends critically on the risk postures of potential contributors and preference heterogeneity.

Abstract:
The notion of diminishing marginal value had a profound impact on the development of neoclassical theory. Early neoclassical scholars had difficulty convincing contemporaries of the new paradigm's value until political economists used the critical assumption of diminishing marginal value to link utility and demand. While diminishing marginal value remains a key component of modern economic intuition, there is little direct verification of this behavioral property. This paper reports experiments on a myriad of subject pools to examine behavior in both price and exchange settings. We report results from nearly 900 subjects across 19 treatments and find strong evidence of diminishing marginal value.

Abstract:
This paper considers how six alternative rebate rules affect voluntary contributions in a threshold public-good experiment. The rules differ by (1) whether an individual can receive a proportional rebate of excess contributions, a winner-takes-all of any excess contributions, or a full rebate of one's contribution in the event the public good is provided and excess contributions exist, and (2) whether the probability of receiving a rebate is proportional to an individual's contribution relative to total contributions or is a simple uniform probability distribution set by the number of contributors. The paper adds to the existing experimental economics literature on threshold public goods by investigating both aggregate and individual demand revelation under the winner-take-all and random full-rebate rules. Half of the rules (proportional rebate, winner-take-all with uniform probability among all group members, and random full-rebate with uniform probability) provide total contributions that nearly equal total benefits, while the rest (winner-take-all with proportional probability, winner-take-all with uniform probability among contributors only, and random full-rebate with proportional probability) exceed benefits by over 30 percent. Only the proportional rebate rule is found to achieve both aggregate and individual demand revelation. Our experimental results have implications for both fundraisers and valuation practitioners.

Abstract:
The dictator game represents a workhorse within experimental economics, frequently used to test theory and to provide insights into the prevalence of social preferences. This study explores more closely the dictator game and the literature's preferred interpretation of its meaning by collecting data from nearly 200 dictators across treatments that varied the action set and the origin of endowment. The action set variation includes choices in which the dictator can "take" money from the other player. Empirical results question the received interpretation of dictator game giving: many fewer agents are willing to transfer money when the action set includes taking. Yet, a result that holds regardless of action set composition is that agents do not ubiquitously choose the most selfish outcome. The results have implications for theoretical models of social preferences, highlight that "institutions" matter a great deal, and point to useful avenues for future research using simple dictator games and relevant manipulations.

Abstract:
We conduct a battery of experiments in which agents make choices from several pairs of all-loss-lotteries. Using these choices, we estimate a representation of individual preferences over lotteries. We find statistically and economically significant departures from expected utility maximization for many subjects. We also estimate a preference representation based on summary statistics for behavior in the population of subjects, and again find departures from expected utility maximization. Our results suggest that public policies based on an expected utility approach could significantly underestimate preferences and willingness to pay for risk reduction.

risky decision-making, loss domain, experiments

Abstract:
Walrasian tatonnement has been a fundamental assumption in economics ever since Walras' general equilibrium theory was introduced in 1874. Nearly a century after its introduction, Vernon Smith relaxed the Walrasian tatonnement assumption by showing that neoclassical competitive market theory explains the equilibrating forces in "double-auction" markets. I make a next step in this evolution by exploring the predictive power of neoclassical theory in decentralized naturally occurring markets. Using data gathered from two distinct markets - the sports card and collector pin markets - I find a tendency for exchange prices to approach the neoclassical competitive model prediction after a few market periods.

Abstract:
We design a field experiment to test two theories of fund-raising for threshold public goods: Andreoni predicts that publicly announced "seed money" will increase charitable donations, whereas Bagnoli and Lipman predict a similar increase for a refund policy. Experimentally manipulating a solicitation of 3,000 households for a university capital campaign produced data confirming both predictions. Increasing seed money from 10 percent to 67 percent of the campaign goal produced a nearly sixfold increase in contributions, with significant effects on both participation rates and average gift size. Imposing a refund increased contributions by a more modest 20 percent, with significant effects on average gift size.

Abstract:
This article measures the degree to which academic economists have engaged in unethical behavior and the degree to which academic economists believe the profession as a whole engages in unethical behavior. Three main types of unethical behavior are examined: (1) falsification of research; (2) expropriation of graduate student research or including an undeserving co-author on a research paper; and (3) exchange of grades for gifts, money, or sex. Using a unique data set gathered at the 1998 American Economic Association (AEA) meetings, we find that there is a significant amount of misconduct, particularly in the second category.

Abstract:
This paper uses state-level pollution data from 1986-1997 to construct two indices that rank U.S. states according to environmental outputs. A major finding is that marginal performers in other indices, such as Wyoming, garner top spots in these ranking systems. The paper also presents findings from fixed and random effects models of panel data that imply state income levels are positively associated with environmental outputs after a threshold level of income is obtained.

Abstract:
This paper explores the origins of the strikingly high price premia paid for new food products in lab valuation exercises. Our experimental design distinguishes between two explanations of this phenomenon: novelty of the experimental experience versus the novelty of the good, i.e., preference learning-bids reflect a person's desire to learn how an unfamiliar good fits into their preference set. Subjects bid in four consecutive experimental auctions for three goods that vary in familiarity, candy bars, mangos, and irradiated meat. Our results suggest that preference learning is the main source of the high premia, and that novelty of the experimental experience does not in itself artificially inflate valuations.

Abstract:
In this paper we address two aspects of regulatory federalism in U.S. environmental policy. First, we suggest that environmental quality in U.S. states responds positively to increases in income. Second, we provide evidence that environmental quality did not decline when President Reagan's policy of new federalism returned responsibility for many environmental regulations to the states. Thus, state environmental quality appears to reflect more than just the dictates of federal policy. Additionally, we find that a 'race to the bottom' in environmental quality did not materialize in the 1980s.