Experimental economics summary paper - Essay Example

Your Full Your s 22 March Summary The article by Cason and Gangadharan . is a study into how environmentally-conscious consumers are willing to pay a higher price for goods they consider environmentally friendly. The study takes place in a market environment where products are put up for sale. As is the case in real life, buyers are not aware of the product’s quality before buying. Cason et al. talk about how this labeling of products and services is a marketing ploy, particularly when such claims are not uniformly regulated.

They conclude that the only effective way in disseminating information regarding quality and to ensure quality control is through the use of a third party that certifies and endorses products to comply with certain standards.A total of 21 buying sessions with 20 trading periods per session were conducted having 5 sellers and 6 buyers per period. The sellers could sell two super or two regular grade products per session. They had to pre-commit to quality in secret prior to any selling taking place.

The fact that regular costs less to produce is a universal fact and all subjects were aware of it. They did not however know the actual difference. Offers were posted up on a whiteboard and at the end of each period, the grades of goods sold revealed. The reputation-only phase of the experiment kept the identities of sellers and hence their sales records revealed. The cheap-talk signaling phase gave sellers the option of either displaying a grade to buyers, or displaying no grade and just the pricing information and numbers up for sale.

The certification part entailed ‘paying’ a fixed amount by the seller to certify their goods. The findings hence are in the categories of reputation, perception created by “cheap-talk” and third-party certification and endorsement.It was discovered that reputation alone may not be enough to satisfy buyers of the quality they were paying for. The number of goods sold increased when compared to the baseline model where no information regarding quality was available. In the second part of the study, sellers were asked to label their goods with vague environmental quality claims.

These also were discovered to be not enough in increasing efficiency or the number of high-quality units. This sort of cheap-talk signaling was found to be effective only when buyers were experienced. In the final part of the study dealing with certification, it was found that verifiable claims where a third party was introduced to monitor quality can help consumers find the information they need before buying. Even though this option came with an added expense to be borne by the seller, there was a marked increase in the number of high-quality units.

Hence, they conclude, certification is found to be a sufficient solution to the moral hazard dilemma under question. I found this to be particularly interesting since the third party endorsing goods and/or services is also offering its own services. Who then endorses them or monitors their quality? Who and what is to stop them from passing on incorrect information. And what if consumers do not take to or believe in endorsements and certifications by a third party?This line of reasoning brings me to a question I would like to put up for discussion: what can be the perfect system of judging whether a product is as environmentally friendly as its manufacturer claims; and whether such a system can be regularized across the globe for the sake of standardizing information.

Works CitedCason, Timothy N., and Lata Gangadharan. “Environmental Labeling and Incomplete Consumer Information in Laboratory Markets.” Journal of Environmental Economics and Management 43.1 (2002): 113-134. Print.