July 2015

IZA DP No. 9240: Social Responsibility in Market Interaction

completely revised and extended version published as 'The Role of Social Information, Market Framing, and Diffusion of Responsibility as Determinants of Socially Responsible Behavior' in: Journal of Behavioral and Experimental Economics, 2019, 80, 141-161

A recent debate raises the question whether market interaction erodes social responsibility. In an experiment, we disentangle three major characteristics of market interaction, diffusion of responsibility, social information, and market framing, and provide evidence for how these characteristics influence behavior when trade harms uninvolved parties. We model the negative externalities from trade by reducing donations to a charity that provides meals to needy children. Our results show that diffusion of responsibility tends to encourage subjects to make purely self-interested decisions. This holds to a much larger extent if the economic transaction is framed as a market. In contrast, social information increases social responsibility in our setting. Observing the behavior of others seems to convince a substantial fraction of people to behave steadfastly, i.e., they avoid trading a good that comes with negative externalities, even if gains from trade are high.