(Illustration by Ben Wiseman)
Does the way that markets operate have a corrupting influence on people’s behavior? Outside of a market context, how much do consumers care about making socially responsible choices? And does a preference for those choices vary from one society to another? “There’s a lot of evidence that market competition largely crowds out concern for other people’s well-being,” says Roberto A. Weber, a professor of behavioral economics at the University of Zurich. To test that proposition, a research team that includes Weber conducted a study of market and nonmarket behavior in two different countries.
Using an approach known as experimental economics, the research team first created a marketplace “game” in a laboratory setting at Weber’s university in Switzerland. In the marketplace, student participants acted as “firms,” as “consumers,” or as “third parties.” Each fi rm had to select one of two products to off er. One product had an unspecified “negative externality” associated with it; the other product—called a “fair” product—had no such negative impact but was more costly to consumers. Each consumer had to decide which of those products to buy. Purchase of the product with a negative externality would cause a third-party participant to lose money, but purchase of the fair product would not have that effect.
Participants in that version of the experiment showed a significant amount of concern for social impact: Roughly 45 percent of the products that they traded fell into the “fair” category, and that percentage was stable over 24 rounds of the game. The researchers then conducted a version of the experiment in which they changed some of its conditions. They increased the level of competition in the marketplace by adding more firms and by varying the cost of the socially responsible product. Making the socially responsible product more expensive, they discovered, caused sales of that product to drop—but sales did not go all the way to zero. “Consumers and firms responded to prices and costs in a sensible way, but also in a manner that showed a stable concern for social impact,” Weber says.
The researchers then ran a similar experiment in China, and that experiment yielded notably different results: Over 24 rounds of the marketplace game, the market share of the fair products ranged from 20 percent to 25 percent—that is, about half of the corresponding share in the Swiss version of the experiment. What accounts for that difference? In both countries, the researchers conducted a variation of the experiment in which students had to make a series of choices in a “nonmarket” context. Instead of buying and selling “products” that had prices and negative externalities, participants decided between options that involved distributing sums of money to three people. With the removal of the marketplace dynamic, in other words, they were no longer behaving as self-maximizing consumers. And in this version of the experiment, the Swiss and Chinese students showed very little difference in the choices they made.
From those results, Weber and his colleagues conclude that market conditions can have a large influence on whether people care about the social impact of their choices. But that effect also varies by social context. According to Weber, the difference in how Swiss and Chinese participants behaved in the marketplace game reflects a difference in cultural norms between the two countries: “In Switzerland, there are strong norms about being socially responsible in your product purchases, and firms are held to expectations of social responsibility.” In China, Weber suggests, people are less apt to judge market-based activity by that standard.
Lise Vesterlund, a professor of economics at the University of Pittsburgh, saw Weber give a talk about this research and says that she finds its conclusions “extremely compelling.” Market conditions may undermine people’s commitment to social responsibility, she observes, but they don’t eliminate that commitment: “Despite competitive pressures, you can sustain a product that doesn’t impose negative externalities on others, because some consumers are willing to pay for it.”
Björn Bartling, Roberto A. Weber, and Lan Yao, “Do Markets Erode Social Responsibility?” The Quarterly Journal of Economics, 130, 2015
Read more stories by Adrienne Day.