We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern The model is incomplete information but nevertheless posed entirely in terms of directly observable variables The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets (JEL C78, C90, D63, D64, H41)

/pdf/erc-a-theory-of-equity-reciprocity-and-competition-9lhkqwqjzg.pdf

ERC: A Theory of Equity, Reciprocity, and Competition

With the publication of The Logic of Collective Action in 1965, Mancur Olson challenged a cherished foundation of modern democratic thought that groups would tend to form and take collective action...

/pdf/collective-action-and-the-evolution-of-social-norms-39il4hoxmh.pdf

Collective Action and the Evolution of Social Norms

This article discusses the economic implications of reciprocity. A long-standing tradition in economics views human beings as exclusively self-interested. In most economic accounts of individual behavior and aggregate social phenomena, the vast forces of greed are put at the center of the explanation. However, many people deviate from purely self-interested behavior in a reciprocal manner. Reciprocity means that in response to friendly actions, people are frequently much nicer and much more cooperative than predicted by the self-interest model; conversely, in response to hostile actions they are frequently much more nasty and even brutal. There is considerable evidence that a substantial fraction of people behave according to this dictum: People repay gifts and take revenge even in interactions with complete strangers and even if it is costly for them and yields neither present nor future material rewards. This notion of reciprocity is thus very different from kind or hostile responses in repeated interactions that are solely motivated by future material gains.

/pdf/fairness-and-retaliation-the-economics-of-reciprocity-3kli7g3xjv.pdf

Fairness and Retaliation: The Economics of Reciprocity

In recent years, there has been a steadily increasing interest on the part of economists in happiness research. We argue that reported subjective well-being is a satisfactory empirical approximation to individual utility and that happiness research is able to contribute important insights for economics. We report how the economic variables income, unemployment and inflation affect happiness as well as how institutional factors, in particular the type of democracy and the extent of government decentralization, systematically influence how satisfied individuals are with their life. We discuss some of the consequences for economic policy and for economic theory.

/pdf/what-can-economists-learn-from-happiness-research-tp056e628i.pdf

What can economists learn from happiness research

https://www.econ.uzh.ch/dam/jcr:ffffffff-9758-127f-0000-00003449356a/ArePeopleCondCooperative.pdf

Are people conditionally cooperative? Evidence from a public goods experiment

We study the profitability and welfare effects of merger in a strategic trade policy environment. Merger changes the strategic trade policy equilibrium. We show that merger can be profitable and welfare enhancing here, even though it is not profitable in a laissez-faire economy. A key element is the change in the governments’ incentives to give subsidies to their local firms. We apply the results to the merger between Boeing and McDonnell-Douglas, where subsidies are a constant matter of debate. Our theory explains why the merger was profitable for Boeing and McDonnell-Douglas, why Airbus Industries opposed the merger, why the US authorities agreed to the merger, and why the EU competition authorities opposed it.

Merger profitability and trade policy

In this paper we investigate how the competitiveness of Cournot markets varies with the number of firms in an industry. We review previous Cournot experiments in the literature. Additionally, we conduct a new series of experiments studying oligopolies with two, three, four, and five firms in a unified frame. With two firms we find some collusion. Three-firm oligopolies tend to produce outputs at the Nash level. Markets with four or five firms are never collusive and typically settle at or above the Cournot outcome. Some of those markets are actually quite competitive with outputs close to the Walrasian outcome.

Two are Few and Four are Many: Number Effects in Experimental Oligopolies

While increasing the number of small donors, standard linear matching schemes have been shown to cause considerable crowding out in charitable giving with pronounced effects on large gifts. We propose a form of threshold matching where donations above a certain, potentially personalized, threshold are topped up with a fixed amount. We show theoretically that threshold matching can induce crowding in if appropriately personalized. In a field experiment, we explore how thresholds should be chosen depending on past donations. We find that the optimal choice of thresholds is rather bold, approximately 60-75% above past donations. Additionally, we explore how thresholds should be set for new donors as a function of their personal characteristics and demonstrate the benefits of personalization as opposed to setting general thresholds applying to all recipients of a fundraising call.

/pdf/personalized-fundraising-a-field-experiment-on-threshold-5g0p9iq6b9.pdf

Personalized Fundraising: A Field Experiment on Threshold Matching of Donations

This paper studies the interplay between economic incentives and social norms in firms. We introduce a general framework to model social norms arguing that norms stem from agents’ desire for, or peer pressure towards, social efficiency. In a simple model of team production we examine the interplay of different types of contracts with social norms. We show that one and the same norm can be output-increasing, neutral, or output-decreasing depending on the incentive scheme. We also show how social norms can induce multiplicity of equilibria and how steeper economic incentives can reduce effort.

Social Norms and Economic Incentives in Firms

Competition in some product markets takes the form of a contest. If some firms cooperate in such markets, they must decide how to allocate effort on each of their products and whether to reduce the number of their products in the competition. We show how this decision depends on the convexity properties of the contest success function, and we characterize conditions under which cooperation is profitable.

Steffen Huck

Papers

Merger profitability and trade policy

Two are Few and Four are Many: Number Effects in Experimental Oligopolies

Personalized Fundraising: A Field Experiment on Threshold Matching of Donations

Social Norms and Economic Incentives in Firms

Merger and collusion in contests