Behavioral Efficiency: Definition, Methodology, Demonstrations

Laboratory experiments employing an induced-values methodology report on allocative efficiencies observed. That methodology requires experimenters know subjects’ motivations, impossible in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An allocation mechanism’s outcome is defined to be behaviorally efficient if an appropriate aftermarket is actually appended to the mechanism and at most a negligible size of remaining mutually beneficial gains identified. Methodological requirements for behavioral efficiency observation are provided. A first demonstration observes significantly greater behavioral inefficiencies in secondthan in first-price auctions. A simple field demonstration indicates when a public good increase can be observed to mutually beneficially cover marginal cost, without knowing valuations. Several empirical issues that arise are noted. C9; C93; D01; D61; D03; D46;