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)
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

Luring Others into Climate Action: Coalition Formation Games with Threshold and Spillover Effects

Date: 2015-03
By: Valentina Bosetti (Fondazione Eni Enrico Mattei, Milan (Italy) and Bocconi University, Milan (Italy))
Melanie Heugues (Fondazione Eni Enrico Mattei, Milan (Italy))
Alessandro Tavoni (Grantham Research Institute, London School of Economics, London (England))
We study the effect of leadership in an experimental threshold public ‘bad’ game, where we manipulate both the relative returns of two investments (the more productive of which causes a negative externality) and the extent to which the gains from leadership diffuse to the group. The game tradeoffs mimic those faced by countries choosing to what degree and when to transition from incumbent polluting technologies to cleaner alternatives, with the overall commitment dictating whether they manage to avert dangerous environmental thresholds. Leading countries, by agreeing on a shared effort, may be pivotal in triggering emission reductions in non-signatories countries. In addition, the leaders’ coalition might also work as innovation and technology adoption catalyzer, thus producing a public good (knowledge) that benefits all countries. In our game, players can choose to tie their hands to a cooperative strategy by signing up to a coalition of first movers. The game is setup such that as long as the leading group reaches a pivotal size, its early investment in the externality-free project may catalyze cooperation by non-signatories. We find that the likelihood of reaching the pivotal size is higher when the benefits of early cooperation are completely appropriated by the coalition members, less so when these benefits spillover to the non-signatories. On the other hand, spillovers have the potential to entice second movers into adopting the ‘clean’ technology.
Keywords: Climate Change, International Cooperation, R&D Spillovers, Threshold Public Goods Game, Coalition Formation Game, Climate Experiment
JEL: Q5 Q58