MLSE Seminar: Frauke Stehr

Date: Monday, September 16th

Presenter: Frauke Stehr

Authors: Frauke Stehr(MPE, UM), Peter Werner (MPE,UM)

Title: Making Up for the Harm One Causes – An Experiment on Voluntary Compensation Behavior

Abstract: Building on the literature on moral behavior in markets, we experimentally study the extent to which people are willing to spend money to reduce the harm their consumption does to others. In a laboratory setting, we first investigate the extent to which subjects are willing to impose a real-world externality on other participants in order to get a private benefit. In a second stage, we introduce a compensation technology that gives subjects the possibility to reduce the externality by spending some of their earnings. We find that without compensation possibility a substantial share of subjects refrain from buying and that they compensate the externality at least partially once compensation is available. In three treatments, we manipulate factors that may affect the extent to which subjects feel guilty about the externality by introducing diffusion of responsibility and diffusion of harm. We find that compensation reduces significantly the net externality that is created in all treatments. However, diffusion of responsibility reduces the amount subjects give to compensation and thus leads to significantly larger net externalities.