Moral Limits of Markets: Answers to ALL TUTORIAL QUESTIONS
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Course
Principles of Economics and Business 2
Institution
Universiteit Van Amsterdam (UvA)
This document contains the answers to all the questions you will have to prepare for the tutorials of Moral Limits of Markets (course code: 6011P0212Y) at the University of Amsterdam. This course lecturers are Niek Brunsveld and Shaul Shalvi.
Tutorial 1
Below you will find the questions that should help you to understand the main points from the
articles. Please prepare these questions before you go to class.
Cowen & Tabarrok, Modern Principles of Economics, Chapter 24 1.
1. What is moral hazard?
When an agent tries to exploit an information advantage in a dishonest or undesirable way. For
example employer and employee.
2. What is adverse selection?
When an offer conveys negative information about the product being offered. Think about
insurance, where this is a common problem.
3. Is surrogacy more a moral hazard or an adverse selection problem, or both? Why?
For this question more than 1 answer is correct. Here is an example:
Surrogacy is more an adverse selection problem because only the people who can’t get a baby on
their own will choose this option, thus only the ‘bads’. But also a moral hazard problem, because
the mother could take advantage of the information asymmetry and keep the baby.
Also, think about who will be a surrogate? Only people who want to make money? What is that for
motivation? And what if they keep drinking and smoking?
Bowles, S. (2008). Policies designed for self-interested citizens may undermine" the moral
sentiments": Evidence from economic experiments. Science, 320, 1605-1609.
4. Incentives can affect preferences, why?
Incentives can eliminate the ‘moral sentiments’ of something and thus change the preferences of
people.
Incentives are something that stimulates someone to do something or to not do something (e.g.
tax or subsidy). But this could also be inefficient!
5. Which lessons can policy makers learn from the experiments described in the article?
People act selfish in a market situation, because moral sentiments are accompanied by financial
incentives. However in an anonymous market people are even more selfish, because others aren’t
watching. When there is no shame, people act as selfish as possible. Policy makers should thus
make a market as transparent as possible.
Falk, A., & Szech, N. (2013). Morals and markets. Science, 340(6133), 707-711.
6. What is the main research question the authors tackle?
Does market interaction have a causal effect on the willingness to accept serious negative
consequences for a third party?
7. What is the dependent (outcome) variable in the study?
If people are willing to give up money to save a mouse’s life.
8. How many treatments does the experiment include? What is unique to each treatment?
The experiment includes three treatments: de individual, bilateral and multilateral market.
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