Changing Preferences: An Experiment and Estimation of Market-Incentive Effects on Altruism

Abstract

This paper studies how altruistic preferences are changed by markets and incentives. We conduct a laboratory experiment in a within-subject design. Subjects are asked to choose health care qualities for hypothetical patients in monopoly, duopoly, and quadropoly. Prices, costs, and patient benefits are experimental incentive parameters. In monopoly, subjects choose quality to tradeoff between profits and altruistic patient benefits. In duopoly and quadropoly, we model subjects playing a simultaneous-move game. Each subject is uncertain about an opponentI s altruism, and competes for patients by choosing qualities. Bayes-Nash equilibria describe subjects' quality decisions as functions of altruism. Using a nonparametric method, we estimate the population altruism distributions from Bayes-Nash equilibrium qualities in di§erent markets and incentive conOIˆgurations. Markets tend to reduce altruism, although duopoly and quadropoly equilibrium qualities are much higher than those in monopoly. Although markets crowd out altruism, the disciplinary powers of market competition are stronger. Counterfactuals confirm markets change preferences.