The current method used by the US Government to calculate benefits and costs does not accurately measure the monetary value of some regulations. The problem is that the method fails to recognize the possibility that individual valuations, reflecting judgments in a relatively isolated, uncoordinated situation, might be significantly different from individual valuations in a situation of coordination. For example, people might be willing to pay $X for a good, supposing that other people have that good, but might be willing to pay $Y to abolish that good, supposing that no one will have that good. Or people might be willing to pay $X to protect members of an endangered species in their individual capacity, but far more than $X for the same purpose, assuming that many others are paying as well; one reason may be that an individual expenditure seems futile. We sketch, identify, and explain this unmeasured value, which we define as coordination value, meant as an umbrella concept to cover several categories of cases in which individual valuation measured in the uncoordinated state might be inadequate. Changing the methodology of benefit–cost analysis to consider coordination value would present serious empirical challenges, but would eliminate the estimation error.

We performed a field experiment in Uruguay in which a 20-year-old chooses between a socially visible and a non-socially visible good after a friend randomly received one of these goods or an unknown one. We find no differences in choices when the friend received the nonvisible good instead of the unknown one. However, decision-makers significantly changed their allocation when their friend received the visible good. Consistent with status concerns driving the results, those in a disadvantaged position consumed more and those in an advantaged position consumed less of the visible good. These findings constitute the first experimental evidence of Duesenberry’s demonstration effects and show that status consumption is a relevant phenomenon among the youth in a developing country setting.

There is a heated debate on whether markets erode social responsibility and moral behavior. However, it is a challenging task to identify and measure moral behavior in markets. Based on a theoretical model, we examine in an experiment the relation between trading volume, prices and moral behavior by setting up markets that either impose a negative externality on third parties or not. We find that moral behavior reveals itself in lower trading volume in markets with a negative externality, while prices mostly depend on the market structure. We further investigate individual characteristics that explain trading behavior in markets with negative externalities.

The structural Quantal Response Equilibrium (QRE) generalizes the Nash equilibrium by augmenting payoffs with random elements that are not removed in some limit. This approach has been widely used both as a theoretical framework to study comparative statics of games and as an econometric framework to analyze experimental and field data. The framework of structural QRE is flexible: it can be applied to arbitrary finite games and incorporate very general error structures. Restrictions on the error structure are needed, however, to place testable restrictions on the data (Haile et al., 2004). This paper proposes a reduced-form approach, based on quantal response functions that replace the best-response functions underlying the Nash equilibrium. We define a regular QRE as a fixed point of quantal response functions that satisfies four axioms: continuity, interiority, responsiveness, and monotonicity. We show that these conditions are not vacuous and demonstrate with an example that they imply economically sensible restrictions on data consistent with laboratory observations. The reduced-form approach allows for a richer set of regular quantal response functions, which has proven useful for estimation purposes.

We investigate contract negotiations in the presence of externalities and asymmetric information in a controlled laboratory experiment. In our setup, it is commonly known that it is always ex post efficient for player A to implement a project that has a positive external effect on player B. However, player A has private information about whether or not it is in player A’s self-interest to implement the project even when no agreement with player B is reached. Theoretically, an ex post efficient agreement can always be reached if the externality is large, whereas this is not the case if the externality is small. We vary the size of the externality and the bargaining process. The experimental results are broadly in line with the theoretical predictions. However, even when the externality is large, the players fail to achieve ex post efficiency in a substantial fraction of the observations. This finding holds in ultimatum-game bargaining as well as in unstructured bargaining with free-form communication.

We experimentally study competitive markets with socially responsible production. Our main focus is on the producers’ decision whether or not to reveal the degree of social responsibility of their product. Compared to two benchmark cases where either full transparency is enforced or no disclosure is possible, we show that voluntary and costless disclosure comes close to the full transparency benchmark. However, when the informational content of disclosure is imperfect, social responsibility in the market is significantly lower than under full transparency. Our results highlight an important role for transparent and standardized information about social externalities.

We study how the scope of negative externalities from market activity affects the willingness of market actors to exhibit social responsibility. Using the laboratory experimental paradigm introduced by Bartling et al. (Q J Econ 130(1):219–266, 2015), we compare the voluntary internalization of negative social impacts by market actors in cases where the negative externality is diffused among many subjects or is concentrated on a single subject. We (1) replicate earlier results demonstrating substantial degrees of market social responsibility and (2) find that the willingness of market actors to act pro-socially is only slightly affected by whether the impacts are concentrated or diffused.

Does political polarization lead to dysfunctional behavior? To study this question, we investigate the attitudes of supporters of Donald Trump and of Hillary Clinton towards each other and how these attitudes affect spiteful behavior. We find that both Trump and Clinton supporters display less positive attitudes towards the opposing supporters compared to coinciding supporters. More importantly, we show that significantly more wealth is destroyed if the opponent is an opposing voter. This effect is mainly driven by Clinton voters. This provides the first experimental evidence that political polarization leads to destructive behavior.

We investigate the role of endowment inequality in a local and global public goods setting with multiple group membership and examine the effect of temporal role reversal on cooperation decisions. Subjects can contribute to a global public good which benefits all subjects and two local public goods which benefit only subjects of either their own group or the group of the other endowment type. Endowment inequality per-se decreases contributions of subjects with a high endowment to the global public good, but increases cooperation of subjects with a low endowment on their local public good, thereby aggravating income disparities. Exogenously induced role reversal for several periods affects cooperation behavior of subjects with a high endowment positively and induces them to contribute more to the global good. Cooperation in unequal environments thus appears to be more stable when all parties have experienced the public goods game from the disadvantageous perspective.

This paper contributes to the ongoing methodological debate on context-free versus in-context presentation of experimental tasks. We report an experiment using the paradigm of a bribery experiment. In one condition, the task is presented in a typical bribery context, the other one uses abstract wording. Though the underlying context is heavily loaded with negative ethical preconceptions, we do not find significant differences with our 18 independent observations per treatment. We conjecture that the experimental design transmits the essential features of a bribery situation already with neutral framing, such that the presentation does not add substantially to subjects’ interpretation of the task.

Some regulations do not only reduce human deaths, injuries, and illnesses; they also protect nonhuman animals. Regulatory Impact Analyses, required by prevailing executive orders, usually do not disclose or explore benefits or costs with respect to nonhuman animals, even when those benefits or costs are significant. This is an inexcusable gap. If a regulation prevents dogs, horses, or cats from being killed or hurt, the benefits should be specified and quantified. This proposition holds even if those benefits are in some sense incidental to the main goal of the regulation. At the same time, turning the relevant benefits into monetary equivalents raises serious challenges, akin to those raised by the valuation of statistical children.

The Black Sea is an enclosed sea surrounded by six coastal countries, of which Bulgaria and Romania are EU Member States. The Convention for the Protection of the Black Sea Against Pollution was ratified in 1994 by all coastal countries. This Convention is the only European regional sea convention to which the EU is not a Party. While Romania and Bulgaria are in favor of EU accession to the Convention, Turkey, Russia and Ukraine thus far have blocked accession. In this paper, we develop a negotiation model with endogenous enforcement and exogenous fraud to analyze the different positions of groups of coastal countries relative to EU accession to the Convention. Our model contributes to defining a proposal that the EU could make to the opposing states such that they accept the EU as a Party to the Convention. In that context we investigate also whether Romania and Bulgaria might be better off delegating their decision power to the EU, rather than retaining their individual voting rights.

Using the case of chronic wasting disease (CWD) in white-tailed deer, we estimated hunters’ willingness-to-pay (WTP) for testing their game and determined how their perception of disease risk, trust, and confidence in wildlife agency affected hunter participation in ongoing disease surveillance. The average WTP for testing was $23.75 per deer, and it was positively related to trust and confidence in the wildlife agency and the perception of risk about deer populations in the declining area and the pathogen spreading to other areas. These findings imply that implementing active outreach programs can improve hunter participation in user-paid systems for CWD surveillance.

Individuals often deem market transactions in sex, human organs and surrogacy, among others, repugnant. Repugnance norms can be explained by appealing to social-status concerns. We study an exchange economy in which agents abhor consumption dominance: one’s social status is compromised if one consumes less of every good than someone else does. Dominance may be forestalled by partitioning goods into submarkets and then invoking the repugnance norms that proscribe trade across these submarkets. Dominance may also be forestalled if individuals strategically ‘overconsume’ some goods, interpreted as emergent status goods. When equilibria are multiple, there is scope for welfare-enhancing policies that coordinate on status goods.

In recent years, ‘environmental economics’ has provided the dominant logic underpinning policies for ‘sustainable development’ in the form of government managed price-based and rights-based mechanisms. The advocacy of property rights in environmental management is taken further in the libertarian ‘free market’ approach and this ‘privatisation’ perspective is reflected in the growing use of property rights instruments in climate change policy. This article examines the efficacy of using economic instruments in the environmental context where ‘market ecology’ promotes the commodification of environmental ‘goods’ and ‘bads’ and their management by market forces. It argues that the pricing of ‘nature’ or its useful properties is a crude abstraction that implies ecological values can be alienated, but this is incompatible with the material and relational qualities of such values. The limits of this conceptualisation are further demonstrated through an examination of the Kyoto Protocol’s Clean Development Mechanism (CDM), a price and property rights instrument which enables private project developers in developing countries to produce carbon credits in order to offset greenhouse gas pollution in developed countries. The evident negative social and environmental effects flowing from implementation of the CDM reinforce the limitations of economic logic in the environmental context.

We present a multiregional endogenous growth model in which forward-looking agents choose their regions to live in, in addition to consumption and capital accumulation paths. The spatial distribution of economic activity is determined by the interplay between production spillover effects and urban congestion effects. We characterize the global stability of the spatial equilibrium states in terms of economic primitives such as agents’ time preference and intra- and interregional spillovers. We also study how macroeconomic variables at the stable equilibrium state behave according to the structure of the spillover network.

We employ a novel approach for analyzing the effects of relative consumption and relative wealth preferences on economic growth. In the pertinent literature, these effects are usually assessed by examining the dependence of the growth rate on the two parameters of the utility function that seem to measure the strength of the relative consumption and the relative wealth motives. Applying our fundamental factor approach, we identify specifications in which the traditional approach yields incorrect qualitative conclusions. The problematic specifications have the common unpleasant property that the parameter that seems to determine the strength of the relative consumption motive actually also affects the elasticity of intertemporal substitution of absolute consumption (and the strength of the relative wealth motive). Since the standard approach is unaware of the additional effect(s), it attributes the total change in the growth rate incorrectly to the change in the strength of the relative consumption motive.

Can smart containment policies crowd out private efforts at social distancing? We analyse this question from the perspective of network formation theory. We focus in particular on the role of externalities in social distancing choices. We also look at how these choices are affected by factors such as the agents’ risk perception, the speed of the policy intervention, the structure of the underlying network and the presence of strategic complementarities. We argue that crowding out is a problem when the probability that an outbreak may spread undetected is relatively high (either because testing is too infrequent or because tests are highly inaccurate). This is also the case where the choice of relaxing social distancing generates the largest negative externalities. Simulations on a real-world network suggest that crowding out is more likely to occur when, in the absence of interventions, face-to-face contacts are perceived to carry relatively high risk.

The idea of assessing the costs and benefits of public and private projects is not new to Europe, dating back to studies at the Ecole des Ponts et Chaussees (Paris) in the XIX century. Later on, in the last century, Benefit-Cost Analysis (BCA) in its current form has been more extensively used in the United States than in Europe. In the last two decades, however, there has been a rapid increase in its use in a number of European countries and at the European Union (EU) level. European governments often undertake tasks that would be done by private companies in the United States, such as the provision of transport, energy, water and waste management, health services, etc. In the United States the focus of BCA has often been regulatory impact analysis, rather than public project evaluation. One might, therefore, expect that Europeans might approach some things differently from their American counterparts and that new insights might result from these efforts. The articles in this symposium, taken from the recent European Society for Benefit-Cost Analysis (SBCA) conference in Toulouse, illustrate some of these differences and some converging themes.

With the aid of a lab experiment, we explored how imperfect monitoring and punishment networks impacted appropriation, punishment and beliefs in a common pool resource appropriation dilemma. We studied the differences between the complete network (with perfect monitoring and punishment, in which everyone can observe and punish everyone else) and two ‘imperfect’ networks (that systematically reduce the number of subjects who could monitor and punish others): the directed and undirected circle networks. We found that free riders were punished in all treatments, but the network topology impacted the type of punishment: the undirected circle induced more severe punishment and prosocial punishment compared to the other two networks. Both imperfect networks were more efficient because the larger punishment capacity available in the complete network elicited higher punishment amount.