Working Paper: NBER ID: w10256
Authors: Muriel Niederle; Alvin E. Roth
Abstract: Many markets have organizations that influence or try to establish norms concerning when offers can be made, accepted and rejected. Examining a dozen previously studied markets suggests that markets in which transactions are made far in advance are markets in which it is acceptable for firms to make exploding offers, and unacceptable for workers to renege on commitments they make, however early. But this evidence is only suggestive, because the markets differ in many ways other than norms concerning offers. Laboratory experiments allow us to isolate the effects of exploding offers and binding acceptances. In a simple environment, in which uncertainty about applicants' quality is resolved over time, we find inefficient early contracting when firms can make exploding offers and applicants' acceptances are binding. Relaxing either of these two conditions causes matching to take place later, when more information about applicants' qualities is available, and consequently results in higher efficiency and fewer blocking pairs. This suggests that elements of market culture may play an important role in influencing market performance.
Keywords: Market Culture; Exploding Offers; Market Performance; Efficiency; Matching
JEL Codes: I0; J0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exploding offers (Y60) | inefficient early contracting (D86) |
| binding acceptances (Y20) | inefficient early contracting (D86) |
| relaxing exploding offers (C70) | higher efficiency (H21) |
| relaxing binding acceptances (Y20) | higher efficiency (H21) |
| exploding offers (Y60) | blocking pairs (Y60) |
| binding commitments (L14) | market dynamics (D49) |
| presence of exploding offers (D44) | early offers (Y20) |