Becker-DeGroot-Marschak Wage Elicitation Mechanism
RCTReview
Measuring worker reservation wages in observational labor markets is prone to strategic misreporting and confounding between offered pay rates and worker ability.
Picture this
Imagine a secret auction where a worker submits their lowest acceptable price for a job. A random wage offer is then drawn from a jar. If the jar's wage is at least as high as the worker's bid, the worker gets hired at the jar's wage; if lower, the worker isn't hired. Because workers cannot increase their pay by bidding higher and risk losing out on profitable work, bidding their exact true minimum acceptable wage is the best strategy.
What the evidence says
Over 60% of participants accepted low piece rates (10 MWK/unit, yielding ~70 MWK daily earnings plus 50 MWK participation fee). Ex-post refusal rates were under 3% and declined over time, confirming that workers learned and adhered to truthful wage revelation.
- Who was studied
- N = 689 rural Malawian casual laborers (66.5% female, 1,875 daily decisions).
- How
- Simplified Becker-DeGroot-Marschak (BDM) mechanism with 5 discrete piece rates (5, 10, 15, 20, 25 MWK per unit sorted) and random draws from a uniform distribution over 4 consecutive days in 12 villages.
What to do
Implement a BDM random wage draw mechanism in experimental field settings to decouple revealed reservation wages from actual assigned piece-rate pay.
From the source
"By breaking the link between the stated reservation piece rate and the actual piece rate paid, it makes truthful revelation of minimum willingness to accept (WTA) the dominant strategy for the participant."
Productivity in piece-rate labor markets: Evidence from rural Malawi