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)
URL: http://d.repec.org/n?u=RePEc:wap:wpaper:1604&r=net
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.

Financial Contagion in the Laboratory: Does Network Structure Matter?

Date: 2016-06
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)
URL: http://d.repec.org/n?u=RePEc:irv:wpaper:151608&r=net
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

Auctions with external incentives: Experimental evidence

Date: 2016
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)
URL: http://d.repec.org/n?u=RePEc:exe:wpaper:1602&r=net
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

Delegation and Public Pressure in a Threshold Public Goods Game: Theory and Experimental Evidence

Date: 2016-03
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)
URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2016.26&r=net
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

Incentives in Experiments: A Theoretical Analysis

Date: 2016-01
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)
URL: http://d.repec.org/n?u=RePEc:osu:osuewp:16-03&r=net
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

Communication and voting in heterogeneous committees: An experimental study

Date: 2016-03
By: Mark T. Le Quement (University of Bonn)
Isabel Marcin (Max Planck Institute for Research on Collective Goods)
URL: http://d.repec.org/n?u=RePEc:mpg:wpaper:2016_05&r=net
We study experimentally the effectiveness of communication in common value committees exhibiting publicly known heterogeneous biases. We test models assuming respectively self-interested and strategic-, joint payoff-maximizing- and cognitively heterogeneous agents. These predict varying degrees of strategic communication. We use a 2 x 2 design varying the information protocol (communication vs exogenous public signals) and the group composition (heterogeneous vs homogeneous). Results are only consistent with the third model. Roughly 80% of (heuristic) subjects truth-tell and vote with the majority of announced signals. Remaining (sophisticated) agents lie strategically and approximately apply their optimal decision rule.
Keywords: Committees, Voting, Information Aggregation, Cheap Talk, Experiment
JEL: C92 D72 D82 D83

Tell Me How to Rule: Leadership, Delegation, and Voice in Cooperation

Date: 2016
By: Marco Faillo
Federico Fornasari
Luigi Mittone
URL: http://d.repec.org/n?u=RePEc:trn:utwpce:1604&r=net
Following some recent studies, we experimentally test the effect of intra-group leadership in a public good experiment. Specifically, individuals taking part in our experiment are randomly assigned either the role of leader or the role of follower. Leaders take part in a public good game, aware of the fact that every decision they make directly affects their followers. In this sense, our experimental setting combines the dimension of leadership in cooperation with the one of delegated agents. In our experiment, we find that leadership produces two main effects: subjects contribute more, and tend to punish more frequently. In spite of the presence of higher contributions, we observe lower payoffs; these are caused by an aggressive behavior that push leaders to mane an undue use of punishment. Allowing one-sided communication between followers and leaders provide a different effect: communication reduces decision makers’ aggressiveness, leading to lower contributions and punishment, but better results in terms of final payoffs. The same welfare can be reached when leadership is not implemented at all; this suggests that the presence of a dictatorial leader in public goods with punishment can be beneficial only when there is communication.
Keywords: Voluntary contribution experiment, Leadership, Punishment
JEL: C72 C92 H41 O12

Where Do Social Preferences Come From?

Date: 2015-08
By: Chaning Jang (Department of Psychology, Princeton University)
John Lynham (Department of Economics & UHERO, University of Hawaii at Manoa; Center for Ocean Solutions, Stanford University)
URL: http://d.repec.org/n?u=RePEc:hae:wpaper:2015-8&r=net
Where do preferences for fairness come from? We use a unique field setting to test for a spillover of sharing norms from the workplace to a laboratory experiment. Fishermen working in teams receive random income shocks (catching fish) that they must regularly divide among themselves. We demonstrate a clear correlation between sharing norms in the field and sharing norms in the lab. Furthermore, the spillover effect is stronger for fishermen who have been exposed to a sharing norm for longer, suggesting that our findings are not driven by selection effects. Our results are consistent with the hypothesis that work environments shape social preferences.
Keywords: ultimatum game; social preferences; fairness; workplace spillovers
JEL: Q2 C9 C7 B4 D1

On Behavioral Macroeconomics, Globalization, and Economic Growth

Date: 2015-06-18
By: Rosas-Martinez, Victor H.
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:70751&r=net
We assess theoretically the effect of forming a free trade union on the total production of a nation, where such effects are caused by the absorption of technologies. A popular metaphor describes the people as crabs in a bucket because when one crab tries to scape, the others pull it down avoiding a possible way out for all of them. Given this knowledge, posteriorly and independently of the income inequality levels, we extend our analyses to consider the effect of envy in a macroeconomic level on the total production, and draw the implications which this phenomenon has on the formation of free trade unions. We make strategic policy recommendations to allow the achievement of a globalization that benefits each member nation, where we show that the great trade union might have to start with gradual and charitable subregional agreements.
Keywords: International Trade; Technological Absorption; Behavioral Macroeconomics; Economic Growth; Trade Policy
JEL: O11 O24

A first test of focusing theory

Date: 2016
By: Dertwinkel-Kalt, Markus
Riener, Gerhard
URL: http://d.repec.org/n?u=RePEc:zbw:dicedp:214&r=net
Focusing theory hypothesizes a bias toward concentration according to which consumers prefer goods with one outstanding feature over those with several smaller sized upsides. In contrast to models of present-biased behavior, focusing theory prescribes also future-biased behavior if an option’s future reward is particularly outstanding. Our laboratory experiment yields substantial support for the bias toward concentration and finds both present-biased and future-biased choices as predicted by focusing theory.
Keywords: Attention,Focusing,Rational choice

 

JEL: D03 D11 D90