Do Legal Standards Affect Ethical Concerns of Consumers?
University of London - Royal Holloway - Department of Economics
Social Science Research Center (WZB); Technical University of Berlin - Faculty of Economics and Management; Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 3266
In order to address the impact of regulation on ethical concerns of consumers, we study the effect of a minimum wage. In our experimental market, consumers have monopsony power, firms engage in Bertrand competition, and workers are passive recipients of a wage payment. Two treatments are employed, one with no minimum wage in the first part but with a minimum wage in the second part, and one treatment with a minimum wage at the outset that is abolished in the second part. In both treatments, wages decrease over time in the first part even though some consumers show an interest in fair wages. If a minimum wage is in place, wages decline even faster. Introducing a minimum wage in a mature market raises average wages, while abolishing it lowers them. We discuss the implications of our results, such as the crowding out of ethical behavior through legal regulation.
Number of Pages in PDF File: 36
Keywords: fairness, crowding out, consumer behavior, minimum wage, experimental economics
JEL Classification: C91, J88, K31working papers series
Date posted: November 3, 2008
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