The effect of monetary versus nonmonetary endowment on WTP in BDM auctions

Abstract

We evaluate the effects of monetary and nonmonetary endowments on willingness to pay (WTP) bids in Becker–DeGroot–Marschak (BDM) experimental auctions. Results indicate that subjects provided with a monetary endowment bid more than those that received a nonmonetary endowment.

Keywords:

• BDM experimental auctions
• willingness to pay
• monetary endowment
• nonmonetary endowment

JEL Classification:

• C93
• D44

Acknowledgements

The authors would like to gratefully thank Professor Jayson Lusk for his constructive suggestions and comments, while absolving him from any remaining errors or omissions.

Notes

¹ This study was performed with second price auctions; theoretically, it is formally equivalent to the BDM mechanism (Noussair et al., 2004). However several papers have shown that the two methods produce conflicting estimates (Rozan et al., 2004).

² The instructions are available from the authors upon request.

³ Previous scholars have noted that for BDM auctions, practice rounds are not required (Feldkamp et al., 2005); therefore, none were used in this research.