SEMINAR 22 March 2012: Ronald M. Harstad, University of Missouri

Behavioral Efficiency: Definition, Methodology, Demonstrations

Abstract

Laboratory experiments employing an induced-values methodology report on allocative efficiencies observed. That methodology requires experimenters know subjects’ motivations, 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 at most a negligible size of remaining mutually beneficial gains identified. Methodological requirements for behavioral efficiency observation are provided. A first demonstration observes significantly greater behavioral inefficiencies in second- than in first-­price auctions. A simple field demonstration indi­cates when a public good increase can be observed to mutually beneficially cover marginal cost, without knowing valuations. Several empirical issues that arise are noted.

C9; C93; D01; D61; D03; D46;

Keywords: behavioral efficiency, field experiment methodology, allocative efficiency, revelation of valuations, aftermarkets