|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:||Tibor Neugebauer (Luxembourg School of Finance, University of Luxembourg)
Stefan Traub (University of Bremen)
In a laboratory experiment subjects were endowed with money and waiting time. Preferences for waiting time reduction were elicited with salient rewards both as a private good and as a public good. The allocations of the public good that were theoretically predicted by the Nash equilibrium and the Lindahl equilibrium, respectively, were computed from the individual private good valuations and compared with the subjects’ actual contributions. We found a significant positive correlation between private good valuations in terms of willingness-to-pay and public good valuations in terms of voluntary contributions. Group contributions to public waiting time reduction significantly exceeded the non-cooperative prediction and were close to the socially optimal level. However, for a majority of subjects, the Lindahl equilibrium was not able to predict the observed contributions.
|Keywords:||Cartel Stability, Delegation, Relative Performance Evaluation|