Leverhulme Trust Seminar: Discerning Efficiency Shortfalls Without Knowing Valuations

Wednesday 27 May 2015, 1.00PM to 2.00pm

Speaker(s): Ron Harstad (Missouri)

Abstract: Laboratory experiments employing an induced-values methodology often report on allocative efficiencies observed. That methodology requires experimenters know subjects’ motivations precisely, questionable in laboratory experiments, impossible in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An allocation mechanism’s outcome is defined to be behaviorally efficient if an appropriate aftermarket is actually appended to the mechanism and measures at most a negligible size of remaining mutually beneficial gains. I specify methodological requirements for an appropriate aftermarket. A first demonstration observes significantly larger behavioral inefficiencies in second- than in first-price auctions. A simple field demonstration indicates when a public-good increase can be observed to cover marginal cost to subjects’ mutual benefit, without knowing valuations. A wide variety of empirical economic-policy studies can utilize this methodology to observe comparative evidence of alternative policies’ allocative-efficiency shortfalls.

Discerning Efficiency Shortfalls Without Knowing Valuations (PDF , 563kb)

Location: ARRC Auditorium A/RC014

Admission: All welcome