ECOBAS Research Seminar: Francisco Gómez-Martínez – Norwegian Business School
Existing evidence demonstrates that the degree of social homogeneity in a society correlates with various economic indicators. Using experimental techniques, we establish the causal impact of social proximity on socially responsible behavior in markets and its implications for economic welfare.
We develop an experimental market where low-cost production generates a negative externality to a third party, while high-cost production eliminates the externality. We compare behavior in groups
varying whether the third party shares a common identity with buyers and sellers (in-group condition) or not (out-group condition). Our findings indicate that socially responsible behavior is generally robust
across our treatments. However, reducing social heterogeneities improves economic welfare indicators: market prices are significantly higher and the number of offers rejected by the buyers becomes significantly lower. This leads to a striking reduction of economic inequality and improvement of market efficiency. Overall, our experiment shows that the social structure of market environments matters a great deal and has significant implications for the design of institutions.
