Do legal standards affect ethical concerns of consumers?

Abstract

We study ethical concerns of consumers in experimental markets. Consumers have monopsony power, firms set prices and wages, and workers are passive recipients of a wage payment who can be protected by a minimum wage regulation. We find that the majority of consumers occasionally deviate from their self-interest and that markets with such consumers exhibit substantially higher wages. Consumers implement fair allocations using two distinct strategies: they split their demand between firms, or they buy all units from the firm with the higher price and higher wage. The two strategies can be captured by maximin preferences and indirect reciprocity in Charness and Rabin’s (2002) reciprocal fairness model. A minimum wage raises average wages although it weakens consumers’ fairness concerns.