Work in Progress

"Trade among moral agents with information asymmetries"

To be presented at the International Economic Association 2023 World Congress

Abstract: Two agents trade an item in a simultaneous offer setting where trade takes place if and only if the buyer’s bid price weakly exceeds the seller’s ask price.  Each is randomly assigned to the buyer or seller role.  Both agents are characterised by a certain degree of Kantian morality  whereby  they  pick  their  bidding  strategy  behind  a  veil  of  ignorance,  taking into  account  how  the  outcome  would  be  affected  if  their  trading  partner  was  adopting their strategy.  I consider two variants with asymmetric information, respectively allowing buyers to have private information about their valuation or sellers to have private valuation about the item’s quality.  I show that even the slightest degree of morality can eliminate inefficient outcomes although this is only achieved with sufficiently high moral standards when quality is uncertain and some trade is socially undesirable.  Morality also ensures an equal ex-ante treatment of the two agents.  I also show that,  if agents are altruistic rather than moral, then inefficiencies persist even with a substantial degree of altruism. 

Keywords: bilateral trade;  asymmetric information; homo moralis; altruism

"Disentangling other-regarding preferences from moral concerns in the lemons problem'' - with Ingela Alger (TSE - IAST)

To be presented at the 2023 Economic Science Association World Meeting at the University of Lyon

Abstract: We conduct a laboratory experiment to assess the willingness to sell a "lemon", i.e., to undertake an action that provides a benefit to self but inflicts a loss on someone else. We investigate whether this is more likely when the decision is described in neutral terms versus when it is presented as a market situation. In addition, we study the role of other-regarding preferences and (Kantian) moral concerns, specifically aiming to disentangle their effects. When evaluating an action, morally motivated individuals consider what their own payoff would have been in the hypothetical case where roles were reversed and the other subject took the same decision (universalization). We vary the salience of role uncertainty, thus varying the ease for participants to envisage the role-reversal scenario. We employ a series of perfect-stranger, one-shot take Dictator Games. We find that (1) subjects are more likely to sell a "lemon" when the decision is framed in market terms, and (2) they are less likely to do so when they are better able to visualise the counterfactual where roles are interchanged. The latter is consistent with the presence of moral concerns of a Kantian nature in the decision-making process. We also structurally estimate other-regarding and Kantian moral concern parameters.

Keywords: Lemons problem; adverse selection; social preferences; Kantian morality; experiment

"Moral motivations in sequential buyer-seller interactions with adverse selection''

Abstract: I study a bilateral trade setting with asymmetric information, where one side has all the bargaining power and makes a take-it-or-leave-it price offer. Both agents hold a certain degree of Kantian morality and thus care about what would have happened had their actions been adopted by their counterpart. In order to capture this, I implement a Veil-of-Ignorance approach, whereby players are uncertain about their role and are thus forced to submit strategies for both the case where they are the Buyer and the Seller. More precisely, in the first stage, both agents propose the price at which they would be willing to buy, while in a second stage they decide whether they would accept to sell at the offered price. Buyer and Seller roles are randomly assigned in the last stage. I consider adverse selection by assuming that the  Seller is fully informed about the product's quality, while the Buyer can only form an expectation about it. I show that when the degree of morality is low, the expected quality necessary to produce efficient equilibria is lower than that required by purely selfish agents and, moreover, it is decreasing in the intensity of the moral concern. I also find a threshold degree of morality above which only efficient equilibria are possible for any expectation about quality. Moral preferences thus mitigate the adverse selection problem and completely eliminate it when sufficiently strong.

Keywords: bilateral trade; asymmetric information; homo moralis; Veil of Ignorance

"Asymmetric Price Effects of Increases and Decreases in Value-added Taxes", with Fernando Borraz (BCU and dECON - FCS - UdelaR)

Abstract:  Coming soon, stay tuned!


Publications

Working Papers

September 2016: "Encuesta Financiera de los Hogares Uruguayos (EFHU-2). Descripción y resultados''.  dECON Working Papers series. With Z. Ferre (dECON - FCS - UdelaR), G. Sanroman (dECON - FCS - UdelaR) and G. Santos (UCLouvain and  dECON - FCS - UdelaR). In Spanish. 

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