Institutions in The Experimental Economics Framework

1
Institutions in The Experimental Economics
Framework

• Chamberlin (1948)- first reported market
  experiment unregulated and unstructured trading
  outcome deviated systematically from the
  competitive predictions
• Smith (1962, 1964) double auction
  institution (bids, asks and prices are public
  information) gtconverge to competitive outcome
• Further focus on the robustness of competitive
  outcome to market institutional alterations

2
Institutions in The Experimental Economics
Framework

• Treatment variable in studying resource
  allocation and market performance
• Formal definition of a market institution
• the rules of private property under which
  agents may communicate and exchange or transform
  commodities for the purpose of modifying initial
  endowment in accordance with private tastes and
  knowledge. (Smith, 1982)

3
Institutions in The Experimental Economics
Framework

• Market institution specifies
• language allowable messages (bids, offer,
  acceptance)
• allocation rules as function of all messages
• adjustment process rules for the exchange of
  messages (starting, transition and stopping
  rules)
• Role transform messages into allocations via
  rules.

4
Institutions in The Experimental Economics
Framework

• Conclusion from experiments Institutions
  matter
• because agent choices of messages are affected
  by the institutional rules.
• Findings of experiments
• Dutch auction has a higher speed of convergence
  than the English auctions gt used on perishable
  commodities market (field evidence)
• Posted price institution less efficient that
  double auction, but it has lower transaction cost.