Freund, Lars
(2018).
Implementation in the Presence of Social Preferences: A Behavioral and Experimental Economic Perspective.
PhD thesis, Universität zu Köln.
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Abstract
In many markets, economic agents possess private information. The economic literature finds that markets in such circumstance perform worse than if information is publicly available. In order to study the welfare consequences of private information the mechanism design literature uses social choice functions. A social choice function states a market outcome for each realization of private information. The main question in the literature is whether social choice functions are implementable by a mechanism, i.e. whether the rules of a market are such that choices due to individual preferences will lead to the same market outcome as stated by the social choice function. In general, these individual preferences take only the own material well-being into account. We study several markets with private information where individuals have preferences about their own material well-being and additional social aspects. In particular, we investigate the consequences of lying aversion in an insurance market, reciprocity in a bilateral trade situation and consideration of others’ material well-being in an auction. The heterogeneity of lying aversion affects the willingness to purchase an insurance if fraud cannot be detected. Individuals with low lying aversion select the insurance and claim the highest possible loss independent of the realized loss while individuals with high lying aversion only purchase the insurance if they are sufficient risk averse. This indicates an adverse selection in the voluntary insurance markets based on the willingness to conduct insurance fraud and consequently an increased price of insurance. The mechanism design literature show that theoretically the inefficiency in bilateral trade situation can be overcome if trading partners are reciprocal. In an experiment we find that the inefficiency remains as buyers distrust correctly sellers to behave kindly and therefore remain selfish. The proposed theoretical kindness equilibrium of sharing potential gains of trades does not realize. Another classical result in the literature is the so-called Cremer-McLean auction that states if individual’s information is dependent, an auctioneer makes in expectation the same profit as if the valuations of bidders are known to him. If bidders care for each others' material well-being the first best implementation is only under perfect correlation implementable. To ensure social robustness of the auction, we demand an externality-freeness condition and show that the auctioneer’s expected profit depends on the intensity of correlation between bidders’ valuations.
| Item Type: | Thesis (PhD thesis) | ||||||||
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| URN: | urn:nbn:de:hbz:38-108580 | ||||||||
| Date: | 2018 | ||||||||
| Language: | English | ||||||||
| Faculty: | Faculty of Management, Economy and Social Sciences | ||||||||
| Divisions: | Faculty of Management, Economics and Social Sciences > Economics > Macroeconomic, Financial and Economic Policy > Professorship for Public Economics | ||||||||
| Subjects: | Economics | ||||||||
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| Date of oral exam: | 30 April 2019 | ||||||||
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| Refereed: | Yes | ||||||||
| URI: | http://kups.ub.uni-koeln.de/id/eprint/10858 |
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