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The Ethics of Incentivizing the Uninformed. A Vignette Study

Sandro Ambuehl and Axel Ockenfels
2017. American Economic Review, 107(5), 91-95.

Our recent working paper (Ambuehl, Ockenfels, and Stewart 2017) shows theoretically and experimentally that people with higher costs of information processing respond more to an increase in the incentive for a complex transaction, and decide to participate based on a worse understanding of its consequences. Here, we address the resulting tradeoff between the principle of informed consent and the principle of free contract. Respondents to our vignette study on oocyte donation overwhelmingly favor the former and support policies that require donors to thoroughly understand the transaction. This finding helps design markets that are not only efficient but also considered ethical.

Policy Brief - Translating the collective climate goal into a common commitment

Peter Cramton, Axel Ockenfels and Jean Tirole
2017. Review of Environmental Economics and Policy, 11(1), 165-171.

The 2015 Paris Climate Conference elicited largely independent and individual commitments from the participating countries (so-called intended nationally determined contributions) in an effort to counter climate change and achieve the collective climate goals. We argue that the Paris approach, based on individual commitments, promotes narrowly self-interested contributions. Narrow self-interest, however, will not be enough to reach the climate goals. To promote international cooperation and to discourage free riding, the collective climate goals must be translated into a reciprocal, common commitment. A reciprocal, common commitment is an agreement to abide by rules that specify cooperation efforts, provided others abide by the same rules. We argue that the best candidate for a common commitment, one that facilitates international negotiations and cooperation, is a global carbon price.

Robust Mechanism Design and Social Preferences

Bierbrauer, Felix, Andreas Pollak, Désirée Rückert and Axel Ockenfels
2017. Journal of Public Economics, 149, 59-80.

We study two classic challenges in mechanism design – bilateral trade à la Myerson and Satterthwaite (1983) and redistributive income taxation à la Mirrlees (1971) and Piketty (1993) – to show that some standard mechanism design solutions systematically fail with social preferences. We therefore introduce the notion of a social-preference-robust mechanism which works not only for selfish but also for social preferences of different nature and intensity, and characterize the optimal mechanism for this class. With the help of a series of laboratory experiments we find that behavior can indeed be better controlled with social-preference-robust mechanisms.

Exposure to Hedione Increases Reciprocity in Humans

Sebastian Berger, Hanns Hatt and Axel Ockenfels
2017. Frontiers in Behavioral Neuroscience, 11, 79.

Cooperation among unrelated humans is frequently regarded as a defining feature in the evolutionary success of our species. Whereas, much research has addressed the strategic and cognitive mechanisms that underlie cooperation, investigations into chemosensory processes have received very limited research attention. To bridge that gap, we build on recent research that has identified the chemically synthesized odorant Hedione (HED) as a ligand for the putative human pheromone receptor (VN1R1) expressed in the olfactory mucosa, and hypothesize that exposure to HED may increase reciprocity. Applying behavioral economics paradigms, the present research shows that exposure to the ligand causes differentiated behavioral effects in reciprocal punishments (Study 1) as well as rewards (Study 2), two types of behaviors that are frequently regarded as essential for the development and maintenance of cooperation.

The German 4G Spectrum Auction: Design and Behavior

Peter Cramton and Axel Ockenfels
2017. The Economic Journal, 127, F305–F324.

The 2010 German 4G spectrum auction was an unusually large simultaneous ascending multi-band auction. The bidding was competitive, the final assignment was efficient and the revenue was close to expectations. However, our analysis suggests that, theoretically, independent and rational bidders had an opportunity to implicitly coordinate on a low-revenue outcome. Coordination was difficult, though, because of a multiplicity of focal points. One important focal point involved post-auction negotiations, posing risks to bidders and the auctioneer. We analyze different bidding scenarios and in particular how post-auction negotiations can affect values, bidding and efficiency. We also briefly discuss how the simultaneous ascending auction format can be augmented to mitigate the risks implied by the possibility of strategic play.