Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94140
Authors: 
Schmidt, Klaus M.
Year of Publication: 
2009
Series/Report no.: 
SFB/TR 15 Discussion Paper 298
Abstract: 
There is a general presumption that social preferences can be ignored if markets are competitive. Market experiments (Smith 1962) and recent theoretical results (Dufwenberg et al. 2008) suggest that competition forces people to behave as if they were purely self-interested. We qualify this view. Social preferences are irrelevant if and only if two conditions are met: separability of preferences and completeness of contracts. These conditions are often plausible, but they fail to hold when uncertainty is important (financial markets) or when incomplete contracts are traded (labor markets). Social preferences can explain many of the anomalies frequently observed on these markets.
Subjects: 
Social preferences
competition
separability
incomplete contracts
asset markets
labor markets
JEL: 
C9
D5
J0
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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