Should I Stay or Should I Go? Bandwagons in the Lab with T.-R. Heggedal & Leif Helland (JEBO June 2018)
We experimentally test the seminal platform selection model of Farrell and Saloner (1985). At the core of this model is the presence of irreversible actions and private valuations. In general, our data support the model. While complementarities in actions strongly determine follower behavior, there is a reluctance to lead not accounted for by theory. We explain observed deviations from the neoclassical equilibrium by injecting some noise in the equilibrium concept. We find that allowing cheap talk messages improves efficiency while policies aimed at insuring failed leadership or subsidizing joint choice of the challenger platform reduce efficiency.
Market Entry with Frictional Matching and Bargaining
This paper studies an experimental labor market that incorporates elements from the standard theory of equilibrium unemployment. Specifically, we test in a controlled lab setting a novel market entry game that includes matching frictions and wage bargaining. The model predicts that firms will enter up to the point at which stochastic rationing of workers equalizes the value (of a vacancy with its costs. Between treatments, we vary productivity and how wages are determined. Consistent with theory, we find that increases in productivity increase job creation and thereby reduce unemployment. We also reproduce the expected outcomes associated with different wage institutions. When wages are determined by bargaining after match, firms face a hold-up problem. As a consequence, job creation collapses when workers have excessive bargaining power. In contrast, when wages are determined prior to entry, workers moderate their wage claims to induce vacancy creation. Although our findings tend to align with theory, we observe some deviations. In particular, there is a systematic bias in the aggregate level of entry. There is too much vacancy creation when productivity is low and too little vacancy creation when productivity is high. To explain this bias and to account for heterogeneity at the individual level, we estimate a quantal response equilibrium in which we allow for idiosyncratic preferences for entry.
Discrimination in Small Markets with Directed Search
To understand the consequences of discrimination for labor market outcomes, it is critical to account for how discrimination interacts with labor market frictions. In an important contribution in this regard, Lang et al. (2005) show how discriminatory hiring leads to labor market segregation in a large (continuum) market environment with posted wages. The essential reason for this outcome is that discriminated workers apply to low wage jobs to avoid competition from workers of the preferred type. This paper makes two contributions: First, I investigate the theoretical properties of a small market analog of the model of Lang et al. (2005). Second, I test a simplified version of the model in the laboratory. In the lab, I find evidence of the postulated segregation effect. Firms learn to take advantage of discrimination and the experimental markets become more segregated over time. Preferred worker types apply almost exclusively to high wage firms and the income of discriminated workers is reduced by about 30% relative to the income of prioritized workers. Relative to treatments without discrimination, firms also increase their payoffs by about 25%. Although we do not reproduce the complete segregation predicted by the theory, we show that the presence of discrimination affects both worker search and firm wage-setting.
WORK IN PROGRESS
- Dispersion over the Business Cycle (with Mikael Carlsson and Alex Clymo)
- The Causal Impact of Trade on Workforce Composition (with Lena Hensvik)
- Convergence Analysis for Experimental Economics (with Steffen Groenneberg)
- Rest Unemployment, Learning, and Reallocation (with Plamen Nenov)
- Monopoly, Resale, and Arbitrage: An Experimental Study (with Christian Riis)