Where to Look for the Morals in Markets?

42 Pages Posted: 25 Aug 2016

See all articles by Matthias Sutter

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Cologne - Department of Economics

Juergen Huber

University of Innsbruck; University of Vienna - Department of Finance

Michael Kirchler

University of Innsbruck

Matthias Stefan

University of Innsbruck

Multiple version iconThere are 2 versions of this paper

Date Written: July 2016

Abstract

Markets are ubiquitous in our daily life and, despite many imperfections, they are a great source of human welfare. Nevertheless, there is a heated recent debate on whether markets erode social responsibility and moral behavior. In fact, competitive pressure on markets may create strong incentives for unethical practices (like using child labor) to increase competitiveness. While markets have been considered as detrimental for moral behavior, it has turned out a challenging task to identify where moral behavior is reflected in a market. Recent work has suggested that falling prices in markets with externalities are an indicator of declining morals. Here we examine the relation between trading volume, prices and moral behavior by presenting an experimental study where we let buyers and sellers interact on a double auction market. In one set of treatments, concluding a trade has no externality; in the other set, there is a negative externality by voiding donations for a potentially life-saving measles vaccine to UNICEF. We find that moral behavior reveals itself in lower trading volume in markets with an externality, but that market prices are hardly different between markets with or without an externality. We also vary the number of buyers and sellers and show that prices depend mainly on the relative number of buyers and sellers, but not on the existence of an externality. Hence, the market forces of supply and demand work equally well in determining prices whether or not trading has an externality.

Keywords: morals, markets, competition, experiment

JEL Classification: C920, D030, D620

Suggested Citation

Sutter, Matthias and Huber, Juergen and Kirchler, Michael and Stefan, Matthias, Where to Look for the Morals in Markets? (July 2016). CESifo Working Paper Series No. 6022. Available at SSRN: https://ssrn.com/abstract=2829266

Matthias Sutter (Contact Author)

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

University of Cologne - Department of Economics

Cologne, 50923
Germany

Juergen Huber

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

University of Vienna - Department of Finance ( email )

Bruenner Strasse 72
Vienna, 1210
Austria

Michael Kirchler

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Matthias Stefan

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, 6020
Austria

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