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Outline In-Class Experiment on the Provision of Public Good Test of Free-Rider Hypothesis I: Marwell and Ames (1979) Test of Free-Rider Hypothesis II: Marwell and Ames (1980) Test of Free-Rider Hypothesis III: Issac and Walker (1988)

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Public Good Voluntary (and unmonitored) contribution Nonexcludability in consumption Pure: Nonrivalry in consumption; Impure Public Good: Rivalry in consumption (crowding or congestion effect)

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Public Good Experiments Individual endowment is and n individuals in a group Invest in Private and Public exchanges: is returns from Private and Public exchanges are: Individuals utility function:

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An Example Individual endowment is $5 and 4 individuals in a group Invest in Private and Public exchanges: $5 m i, m i is returns from Private and Public exchanges are: Individuals utility function: Impure Public Good

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What are the interesting dependent and independent variables ?

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Dependent Variables Investment in Public exchange: % of individuals who invest 0 in public exchange, Pr

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The Central Hypotheses Strong Free-Rider Hypothesis: If, Pr = 100% and Weak Free-Rider Hypothesis If

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List of Independent Variables Group size, n is return from public exchange, Provision Point, C Distribution of initial resources, Stake size Experience Ratio of number of private versus public exchanges

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Marwell and Ames (1979) Group size, n (4 or 80) is return from public exchange, (same S i or S B /S G =2.5 and % of Blue = 25%) (Distribution of Interests) Distribution of initial resources, (same or Blue has 45% and Green has 55%) 2 (H vs. S) x 2(E vs. U) x 2(E vs. U)

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Initial Resources Z i = 225 tokens per person for equal resource case (or average initial resource for unequal resource case) Return from each token invested in private exchange is worth one cent.

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The choice of

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Problems with the Design Deception (honesty is a public good!) Multiple Nash equilibria

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Hypotheses Hypothesis 1: Free-rider Hypothesis (Game Theory = Sociology Theory) Strong Free Rider Weak Free Rider Hypothesis 2: Differences in Resources and Interests (Game Theory = Sociology Theory) Small groups with unequal interest (SUE and SUU) contain a person with V i > C. If V i > C: SUE and SUU groups will therefore have higher levels of investment in the group exchange than other groups. V i and Z i > C: Only SUU groups will invest substantially in group exchange. Hypothesis 3: Group Size (Game Theory and Sociology Theory have different predictions) Group size: Public good is more likely to be provided in a small group due to perceptibility

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Average Investment in Group Exchange

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Tests of Hypothesis 1 Z i = 225

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Test of Hypotheses 2 and 3

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Individual Behavior

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Observations Small groups (SUE) and SUU): 75% of high-interest subjects contribute all, or nearly all, of their tokens Low-interest subjects tend to invest in much the same way as the members of all other groups (The weak did not exploit the strong). Large groups (LUU and LUE): The major difference between large and small groups occurs in the behaviors of high-interest members of LUU groups. 87% of high-interest LUU members contribute half or less of their available funds. It appears that the high-interest and high-resource subjects realized their inability to control the outcome unilaterally and behaved like most other subjects.

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Definition of Fairness and Investment

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Concern with Fairness and Investment

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Summary