Implications of The Endowment Effect
Herbert Hovenkamp (1991) has argued that the presence of an endowment effect has significant implications for law and economics, particularly in regard to welfare economics. He argues that the presence of an endowment effect indicates that a person has no indifference curve (see however Hanemann, 1991) rendering the neoclassical tools of welfare analysis useless, concluding that courts should instead use WTA as a measure of value. Fischler (1995) however, raises the counterpoint that using WTA as a measure of value would deter the development of a nation's infrastructure and economic growth.
The endowment effect has also been raised as a possible explanation for the lack of demand for reverse mortgage opportunities in the United States (contracts in which a home owner sells back his property to the bank in exchange for an annuity) (Huck, Kirchsteiger & Oechssler, 2005).
Read more about this topic: Endowment Effect
Famous quotes containing the words implications of, implications, endowment and/or effect:
“The power to guess the unseen from the seen, to trace the implications of things, to judge the whole piece by the pattern, the condition of feeling life in general so completely that you are well on your way to knowing any particular corner of it—this cluster of gifts may almost be said to constitute experience.”
—Henry James (1843–1916)
“The power to guess the unseen from the seen, to trace the implications of things, to judge the whole piece by the pattern, the condition of feeling life in general so completely that you are well on your way to knowing any particular corner of it—this cluster of gifts may almost be said to constitute experience.”
—Henry James (1843–1916)
“The parent must not give in to his desire to try to create the child he would like to have, but rather help the child to develop—in his own good time—to the fullest, into what he wishes to be and can be, in line with his natural endowment and as the consequence of his unique life in history.”
—Bruno Bettelheim (20th century)
“Where there is not discernment, the behavior even of the purest soul may in effect amount to coarseness.”
—Henry David Thoreau (1817–1862)