Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222131
Authors: 
Danz, David
Engelmann, Dirk
Kübler, Dorothea
Year of Publication: 
2020
Series/Report no.: 
Discussion Paper 234
Abstract: 
To address the impact of regulation on ethical concerns of consumers, we study the example of minimum wages. In our experimental market, consumers have monopsony power, firms set prices and wages, and workers are passive recipients of a wage payment. We find that the majority of consumers occasionally deviate from their self-interest and that markets with such consumers exhibit substantially higher wages. Consumers implement fair allocations using two distinct strategies: they split their demand equally between firms, or they buy all units from the firm with the higher price and higher wage. The two strategies can be captured by maximin preferences and indirect reciprocity in Charness and Rabin's (2002) reciprocal fairness model. Introducing a minimum wage in a market raises average wages despite its significant crowding out effects on consumers' fairness concerns. Abolishing a minimum wage crowds in consumer fairness concerns, but crowding in is not sufficient to avoid overall negative effects on workers' wages
Subjects: 
Fairness
Consumer Behavior
Minimum Wage
Crowding Out
Experimental Economics
JEL: 
C72
C92
D83
D84
Document Type: 
Working Paper

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