I N T R O D U CT I O N
1
Chapter I
Introduction
In recent years, traditional economic theory has been enriched by behavioral
components. There is huge and rapidly growing evidence from empirical and
experimental studies that mere profit maximization is in many cases not a good
proxy of real-life decision-making and interaction in economic situations. Yet,
although the concept of homo oeconomicus has subsequently been dismissed by
many authors, behavior is not random or arbitrary, but follows systematic
patterns and rules that researchers in the field of behavioral economics aim at
understanding (for an overview see e.g. Camerer (2003)).
This thesis adds to the understanding of actual economic decision-making
by analyzing behavior in three different economic applications. The main
research method is an experimental approach; insights from theoretical models
are used to derive benchmarks against which actual behavior is evaluated. Hence,
in addition to the conceptional insights of a theoretical analysis, experiments test
the robustness of results and thereby help to discover relevant behavioral
phenomena. This is an essential premise for a systematic prediction of behavior
and thus for further policy implications.
The first application in Chapter II concerns experimental studies on the
performance of partnership dissolution mechanisms. The dissolution mechanisms
are basically judged according to two criteria: allocative efficiency and fairness
in terms of equality of ex-ante payoff expectations. Chapter III is an application
to investment in research and development (R&D). This chapter studies the
effects of a policy instrument (subsidies or patents) on a firm’s incentives to
invest in R&D. Finally, the third application in Chapter IV takes a more
fundamental research approach and tests the prerequisites for solidarity behavior
of economic agents. More precisely, we investigate the impact of responsibility
for being in a disadvantageous situation through deliberate risk-taking on
voluntary gift giving.
2
P A R T N E R S H I P D I S S O L U T I O N , R&D I N V E S T M E N T ,
AND
GIFT GIVING
The first two studies in Chapter II are standard mechanism design studies
dealing with a bilateral bargaining situation: A two-parent partnership is to be
dissolved and the agents negotiate who becomes sole owner of the object and
which compensation is paid to the selling partner. As institutional arrangements
to allocate the object we consider two dissolution mechanisms: the cake-cutting
mechanism and the winner’s bid auction. The performance of the two
mechanisms is measured by two criteria: (1) ex-post allocative efficiency (i.e.,
the higher value bidder receives the object) and (2) ex-ante payoff expectations
(i.e., ex-ante means before subjects know their value for the object). In an
independent private values framework in which agents exhibit homogeneous risk
preferences it has been shown theoretically that auctions are more efficient
mechanisms than the cake-cutting mechanism and that the cake-cutting
mechanism leads ex ante to unequal payoff expectations in case of risk neutrality
(see e.g. McAfee (1992) and Cramton et al. (1987)). Yet, despite the clear
theoretical superiority of auctions under these assumptions, the cake-cutting
mechanism is the prevalent dissolution mechanism in practice. Thus, Chapter II
provides experimental investigations of how actual behavior influences allocative
efficiency and fairness of these competing mechanisms both in the simplest
possible framework with independent private values as well as in a more
complex framework with interdependent valuations.
The first part of Chapter II (based on joint work with Thomas Kittsteiner
and Axel Ockenfels) starts with independent private values. The experimental
data contradict standard theoretical predictions concerning efficiency results and
rather support the mechanism selection we observe in reality. However, the
theoretical predictions with respect to ex-ante payoff expectations could be
corroborated by our data. To give a possible explanation for our findings we
develop a theoretical model in which agents might exhibit heterogeneous risk
preferences.
The second part of Chapter II provides an experimental robustness check
of the ranking of the two mechanisms if we assume more complex preferences,
namely if the valuations structure is characterized by interdependent valuations
rather than independent private values. The robustness of results is an important
question as in practice these mechanisms must operate in a variety of contexts.
We rank the two mechanisms again with regard to efficiency and ex-ante payoff
expectations. While the payoff expectations results remain robust, we observe the
reverse ranking in terms of efficiency. Thus, the experiment provides evidence
I N T R O D U CT I O N
3
that preferences play a considerable role in how the dissolution mechanisms
perform. The winner’s bid auction turns out to be more robust independent of a
specific valuation structure than the cake-cutting mechanism. Moreover,
according to theory the interdependent valuations case gives rise to a new
problem also in the laboratory: Due to adverse selection effects subjects who
receive an intermediate signal for the valuation of the partnership would not
participate voluntarily in the dissolution as they realize negative gains from trade.
Chapter III (which originated from joint work with Donja Darai and Jens
Großer) examines two differing policy instruments, namely subsidies and patents,
widely used to enhance firms’ incentives to invest in R&D. The need for policy
instruments arises since many empirical studies have found evidence that firms
tend to underinvest in R&D compared to the socially optimal R&D investment
level. We study the effects of both subsidies and patents on incentives to
innovate in a simple theoretical model as well as in a controlled laboratory
setting. The theoretical framework is a two-stage game consisting of an
investment stage followed by a market stage. At the first stage, the firms can
invest in a stochastic R&D project which might lead to a reduction of the
marginal production costs and at the second stage, the firms face price
competition. Parameters are chosen such that in equilibrium both patents and
subsidies induce the same amount of R&D investment which is higher than the
investment without governmental incentives. In the experiment subsidies as well
as patents indeed increase investment levels of the firms substantially. However,
contrary to the theoretical prediction, this has no significant positive effect on
welfare. The reason for this result is that we observe overinvestment in all
treatments which destroys the positive welfare effects to some extent. The
observed overinvestment can be partly explained by discrete asymmetric
equilibria. Considering distributional effects shows that firms would prefer
patents whereas consumers benefit most if subsidies are introduced. This result
illustrates that, although both instruments are consistent with the social goal
(namely both set similar incentives to increase investment levels), the selection
of a specific instrument determines which group is able to reap the benefits of it.
Chapter IV (based on joint work with Ralf Radermacher) tests the
influence of self-inflicted neediness on the perceived fairness and thus on the
solidarity behavior of subjects. This chapter is based on the solidarity game
experiment of Selten and Ockenfels (1998) who found strong evidence for
positive conditional gift giving in a situation in which the ex-ante probability of
4
P A R T N E R S H I P D I S S O L U T I O N , R&D I N V E S T M E N T ,
AND
GIFT GIVING
becoming needy is the same for all group members and in which all group
members are potential donors and potential recipients at the time of their decision.
Standard economic theory is not able to capture this empirical phenomenon that
is at odds with pure payoff maximization. In this context, we extend the seminal
study by Selten and Ockenfels (1998) and explore whether the willingness to
transfer money depends on responsibility and self-inflicted neediness. In fact, the
data provide evidence that, controlling for payoff distributions, subjects are less
generous towards those whose bad outcome is a result of their own risk-taking
actions compared to those who cannot be blamed for their bad outcome. Hence,
the study on gift giving shows that there indeed exists solidarity as such, but that
it is crowded out to a considerable amount if subjects are thought to be
responsible for being in need. A cross-cultural comparison of Indian and German
data indicates qualitatively robust results concerning the driving forces behind
solidarity behavior in our experiment in spite of various cultural influences.
Quelle:
Nadja Trhal: Experimental Studies on Partnership Dissolution, R&D
Investment, and Gift Giving, Kölner Wissenschaftsverlag, Köln, 2009.
© 2009 Kölner Wissenschaftsverlag und Nadja Trhal