Social Structure, Non-market Valuation, and Bargaining

This dissertation consists of three chapters that explore the effects of social utility on non-market values and bargaining.

Chapter 1 considers the role of social networks in the valuation of public goods. In the model individuals derive utility from both their own direct enjoyment of the public good as well as from the enjoyment of those in their social network. We find that the network increases an individual's valuation for the public good when members of her network have a higher weighted average valuation than she does. The network increases aggregate valuation when it assigns higher importance, that is, greater total weight, to individuals with higher private values for the public good. The model provides a theoretical foundation for the idea of opinion leaders who have disproportionate influence over their communities. The model can also guide future empirical studies by enabling a more structural approach to non-market valuation in a socially-connected group.

Chapter 2 shows that yes/no responses of dichotomous choice Contingent Valuation (CV) surveys are not independent when social networks influence non-market values. The empirical CV literature has yet to attempt estimation of non-market values explicitly accommodating network effects. We investigate the statistical properties of estimates of mean willingness to pay obtained through standard approaches that ignore social networks. Monte Carlo experiments, with different types of simulated and real world social networks, indicate that failure to account for network effects leads to underestimation of non-market values.

Chapter 3 reports results of an experiment designed to explore the trade-offs between added surplus and lost bargaining power in long-term contracting. Participants played a sequential bargaining game whereby the first mover (the procurer) selects whether to be the recipient in a single-shot dictator game or a twice-repeated ultimatum game. We find that, in general, participants prefer to retain the bargaining power of the ultimatum games as opposed to engage in a dictator game played over a bigger endowment. This result suggests that diminished bargaining power can be a serious detriment to realizing long-term gains from trade.