Abstract This paper describes an experiment in which subjects, acting as division managers, exchanged privately held information before making intrafirm investment decisions. Social efficiency required that managers honestly disclose their private information, but managers had individual incentives to send biased messages. These features of the model created an important role for ex post verification, the main manipulation in the experiment. The matching protocol was also manipulated, using both random and continuous matching of subjects. This second manipulation was intended to examine whether an important institutional attribute — the frequency of interaction — would affect the usefulness of verification. The results of the experiment indicate that verification significantly increased the relative frequency of honest messages and the level of social efficiency. However, the improvements from verification were greater in settings where subjects did not interact repeatedly. The data also indicate that, in the continuous matching treatments, responses depended on the history of behavior of the message sender. However, this behavior was not observed in the random matching treatments. Thus, both the efficacy of verification and the extent of reputation formation depended on the institutional setting.

This paper describes an experiment in which subjects, acting as division managers, exchanged privately held information before making intrafirm investment decisions. Social efficiency required that managers honestly disclose their private information, but managers had individual incentives to send biased messages. These features of the model created an important role for ex post verification, the main manipulation in the experiment. The matching protocol was also manipulated, using both random and continuous matching of subjects. This second manipulation was intended to examine whether an important institutional attribute — the frequency of interaction — would affect the usefulness of verification. The results of the experiment indicate that verification significantly increased the relative frequency of honest messages and the level of social efficiency. However, the improvements from verification were greater in settings where subjects did not interact repeatedly. The data also indicate that, in the continuous matching treatments, responses depended on the history of behavior of the message sender. However, this behavior was not observed in the random matching treatments. Thus, both the efficacy of verification and the extent of reputation formation depended on the institutional setting.

Journal Article Option Value: Empirical Evidence from a Case Study of Recreation and Water Quality: Reply Get access Douglas A. Greenley, Douglas A. Greenley Moorhead State University Search for other works by this author on: Oxford Academic Google Scholar Richard G. Walsh, Richard G. Walsh Colorado State University Search for other works by this author on: Oxford Academic Google Scholar Robert A. Young Robert A. Young Colorado State University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 100, Issue 1, February 1985, Pages 295–299, https://doi.org/10.2307/1885749 Published: 01 February 1985

A procedure for measuring option value and other preservation values of water quality is developed and applied to a case study area in the South Platte River Basin, Colorado. Benefits from water-based recreation activities are the focus of the study. The results provide an empirical test and confirmation of Weisbrod's proposal that option value and other preservation values represent important social benefits, and should be added to the aggregate consumer surplus of recreation activities to determine the total benefit of environmental amenities to society. In the absence of such an estimate, insufficient resources would be allocated by society to preservation of unique environments such as pristine mountain streams where mineral and energy development may irreversibly degrade water quality.

ABSTRACT: Research in budgeting suggests that subordinates may exhibit economically significant degrees of honesty, in spite of pecuniary incentives to do otherwise. This study continues the exploration of honesty in budgeting along two dimensions. First, unlike prior experiments, we measure the incremental effect of honesty by manipulating whether budget requests are made in the form of a factual assertion. Second, prior designs may have emphasized the ethical dimension of budgeting by granting the subordinate wide discretion over setting the budget, whereas we manipulate whether the subordinate or the superior has final authority over setting the budget. We find that less slack is created when budget communication requires a factual assertion in the subordinate authority treatment, but not when the superior has final authority. Hence, we find an incremental effect of honesty only when the subordinate has final authority. We conjecture, and provide some evidence, that this is due to subordinates framing the superior authority situation as one of negotiation where each party acts in his or her self-interest, rather than as an ethical dilemma. This view, that budgeting is essentially devoid of ethical considerations, is consistent with some recent characterizations of budget practices.