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Speaker:
Miguel Abellán

Seminar in Microeconomics Day 4 - Second Identity

Miguel Abellán (Leuphana University Lüneburg) 

Markets, social responsibility and identity

We study whether consumer social responsibility in markets (i.e., the willingness to sacrifice monetary gains in order to prevent a negative trade externality) depends on the (degree of) identification of consumers with the harmed party. Building on the market paradigm in Bartling et al. (2015, 2019), we develop a stylized market experiment consisting of two sellers, one buyer and one third party not involved in the market transaction but potentially harmed by it. There are two products in this market: (1) a low-cost product that causes a negative externality on the third party; (2) a “socially responsible” product with higher production costs but no negative externality on the third party. In a two-stage procedure, we first elicit the consumer willingness to pay for both types of product. In a second stage, we record market interactions in 24 consecutive market rounds in which the sellers first choose one type of product and the price for it. The buyer chooses then between buying one of the two products or no product at all. Within an ingroup/outgroup setting, we analyze whether changing the identity of the third party affects the market share of the “socially responsible” product. The experiment consists of three treatments: (1) a control treatment without reference to social identity; (2) an ingroup treatment in which the buyer and the third party share the social identity; (3) an outgroup treatment in which the buyer and the third party have a different social identity. We conduct two experiments: Experiment 1 (regional identities) is conducted at the University of Mainz and the University of Kiel. Social identity is induced by the affiliation of the participants to their respective university. In experiment 2 (minimal group paradigm), social identity is induced by purposefully meaningless preferences over two painters. Against prediction, our results suggest that prices, not identity, are the decisive determinant of social responsibility in markets. As long as the price premium for the “socially responsible” is excessively high, consumers buy the low-cost product with a negative externality on the third party, regardless of the identity of the latter.