Using data from a unique household survey and an artefactual field experiment conducted in rural Bangladesh, this study evaluates the impact on trust in community members of an incentive to maintain a risk-sharing arrangement between villagers. Risk sharing is a major opportunity for cooperation in rural economies, and the experience of cooperation could facilitate trust. In order to test this hypothesis, this study characterizes the incentive for risk sharing by the patterns of exogenous income shocks in the real world and risk preference, and trust in community members is elicited experimentally. The empirical results from dyadic regression demonstrate that villagers connected by a stronger incentive form higher level of trust. It is also found that villagers are more likely to share risks in villages that have stronger incentives. These findings suggest that the introduction of formal insurance, which reduces the incentive of risk sharing, could break down trust.
|Keywords:||Trust formation; risk sharing; experiment; Bangladesh|
|By:||Mikel Alvarez-Mozos (Universitat de Barcelona)
José María Alonso-Meijide (Universidade de Santiago de Compostela)
María Gloria Fiestras-Janeiro (Universidade de Vigo)
In this note we characterize the restriction of the externality-free value of de Clippel and Serrano (2008) to the class of simple games with externalities introduced in Alonso-Meijide et al. (2015).
|Keywords:||Externality-free value, Shapley–Shubik index, Partition function.|
The Impact of Microfinance on Pro-Social Behaviors: Experimental Evidence of Public Goods Contributions in Uganda
|By:||Bryan McCannon (West Virginia University, Department of Economics)
Zachary Rodriguez (Saint Bonaventure University, School of Business)
We ask whether access to microfinance loans by the poor has a spillover effect on their proâ€ social behaviors. An experimental field study in southern, rural Uganda is conducted using free riding in public goods contributions as an assessment. We document higher levels of contributions by those who have previously received a microloan. This effect cannot be explained by changes in social norms, income effects, or sample selection bias. The results suggest that exposure to microfinance promotes social preferences.
|Keywords:||experiment, field study, free riding, microfinance, public goods, social norm, social preference, Uganda|
Solving the second-order free rider problem in a public goods game: An experiment using a leader support system
|By:||Hiroki Ozono (Faculty of Law, Economics and Humanities, Kagoshima University)
Nobuhito Jin (School of Psychology Practices, College of Integrated Human and Social Welfare Studies, Shukutoku University)
Motoki Watabe (School of Business, MonashUniversity, Malaysia, Jalan Lagoon Selatan)
Kazumi Shimizu (School of Political Science and Economics, Waseda University)
To study the collective action problem, researchers have investigated public goods games (PGG), in which each member decides to contribute to a common pool that returns benefits to all members equally. Punishment of non-cooperators—free riders—can lead to high cooperation in PGG. However, the existence of second-order free riders, who do not pay punishment costs, reduces the effectiveness of punishment. We focus on a “leader support system,” in which one group leader can freely punish group followers using capital pooled through the support of group followers. In our experiment, participants were asked to engage in three stages: a PGG stage in which followers decided to cooperate for their group; a support stage in which followers decided whether to support the leader or not; and a punishment stage in which the leader could punish any follower. We found both higher cooperation and higher support for a leader achieved under linkage-type leaders—who punished both non-cooperators and non-supporters. In addition, linkage-type leaders themselves earned higher profits than other leader types because they withdrew more support. This means that a leader who effectively punishes followers could increase their own benefits and the second-order free rider problem would be solved.
|By:||John Duffy (Department of Economics, University of California-Irvine)
Aikaterini Karadimitropoulou (School of Economics, University of East Anglia)
Melanie Parravano (Business School, Newcastle University)
We design and report on laboratory experiments exploring the role of interbank network structure for the likelihood of a financial contagion. The laboratory provides us with the control necessary to precisely explore the role of different network configurations for the fragility of the financial system. Specifically, we study the likelihood of financial contagion in complete and incomplete networks of banks who are linked in terms of interbank deposits as in the model of Allen and Gale (2000). Subjects play the role of depositors who must decide whether or not to withdraw their funds from their bank. We find that financial contagions are possible under both network structures. While such contagions always occur under an incomplete interbank network structure, they are significantly less likely to occur under a complete interbank network structure where interbank linkages can effectively provide insurance against shocks to the system, and localize damage from the financial shock.
|Keywords:||Contagion; Networks; Experiments; Bank runs,; Interbank seposits; Financial fragility|
|JEL:||C92 E44 G21|
|By:||Miguel A. Fonseca (Department of Economics, University of Exeter)
Francesco Giovannoni (Department of Economics, CSE and CMPO, University of Bristol)
Miltiadis Makris (Department of Economics, University of Southampton)
We consider auctions where bidders have external incentives and focus on the case where their valuations in the auction are positively correlated with their productivity which matters in a second stage job market. We study how this affects bidding behavior and wages in the job market and proceed to test the model’s implication in an experiment where treatments differ according to which bids are disclosed. Our results broadly confirm the theoretical prediction that bidders tend to overbid, and their bidding behavior and wages are influenced by the disclosure rule. The data also suggests that the dispersion in worker wages is affected by the disclosure rule, suggesting the importance of reputational bidding.
|Keywords:||Auctions, signaling, disclosure, experiments.|
|JEL:||C92 D44 D82|
|By:||Doruk Iris (Sogang University)
Jungmin Lee (Sogang University and Institute for the Study of Labor (IZA))
Alessandro Tavoni (London School of Economics, Grantham Research Institute on Climate Change and Environment)
The provision of global public goods, such as climate change mitigation and managing fisheries to avoid overharvesting, requires the coordination of national contributions. The contributions are managed by elected governments who, in turn, are subject to public pressure on the matter. In an experimental setting, we randomly assign subjects into four teams, and ask them to elect a delegate by a secret vote. The elected delegates repeatedly play a one shot public goods game in which the aim is to avoid losses that can ensue if the sum of their contributions falls short of a threshold. Earnings are split evenly among the team members, including the delegate. We find that delegation causes a small reduction in the group contributions. Public pressure, in the form of teammates’ messages to their delegate, has a significant negative effect on contributions, even though the messages are designed to be payoff-inconsequential (i.e., cheap talk). The reason for the latter finding is that delegates tend to focus on the least ambitious suggestion. In other words, they focus on the lower of the two public good contributions preferred by their teammates. This finding is consistent with the prediction of our model, a modified version of regret theory.
|Keywords:||Delegation, Cooperation, Threshold Public Goods Game, Climate Experiment, Regret Theory|
|JEL:||C72 C92 D81 H4 Q54|
|By:||Paul J. Healy (Department of Economics, Ohio State University)
Yaron Azrieli (Department of Economics, Ohio State University)
Christopher P. Chambers (Department of Economics, University of California, San Diego)
Experimental economists currently lack a convention for how to pay subjects in experiments with multiple tasks. We provide a theoretical framework for analyzing this question. Assuming monotonicity (dominated gambles are never chosen) and nothing else, we prove that paying for one randomly-chosen problem — the random problem selection (RPS) mechanism — is essentially the only incentive compatible mechanism. Paying for every period is similarly justified when we assume only a ‘no complementarities at the top’ (NCaT) condition. To help experimenters decide which is appropriate for their particular experiment, we also discuss empirical tests of these two assumptions.
|Keywords:||Experimental design, decision theory, mechanism design|
|JEL:||C90 D01 D81|
|By:||Paul J. Healy (Department of Economics, Ohio State University)
John Conlon (Department of Economics, Ohio State University)
Yeochang Yoon (Department of Economics, Ohio State University)
We study behavior in an information cascades setting where previous buyers of the product leave noisy but informative ratings of the product. Although this increases the amount of public information available, Yoon (2015, working paper) shows that ratings can actually increase the frequency of cascades in which buyers do not purchase even though the product is of high quality. This occurs because non-buyers do not leave ratings. Although we find some evidence roughly in line with the theory, those results are swamped by a strong tendency for subjects to purchase even when public information suggests they should not.
|Keywords:||Information Cascades; Herding; Activity Bias|
|JEL:||D83 C92 D03|