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Outline

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). Public Good. Voluntary (and unmonitored) contribution

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Outline

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  1. 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)

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

  3. Public Good Experiments • Individual endowment is and n individuals in a group • Invest in Private and Public exchanges: • i’s returns from Private and Public exchanges are: • Individual’s utility function:

  4. An Example • Individual endowment is $5 and 4 individuals in a group • Invest in Private and Public exchanges: $5 – mi, mi • i’s returns from Private and Public exchanges are: • Individual’s utility function: Impure Public Good

  5. What are the interesting dependent and independent variables ?

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

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

  8. List of Independent Variables • Group size, n • i’s return from public exchange, • Provision Point, C • Distribution of initial resources, • Stake size • Experience • Ratio of number of private versus public exchanges

  9. Marwell and Ames (1979) • Group size, n (4 or 80) • i’s return from public exchange, (same Sior SB/SG=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)

  10. Initial Resources • Zi = 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.

  11. The choice of

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

  13. 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 Vi > C. • If Vi > C: SUE and SUU groups will therefore have higher levels of investment in the group exchange than other groups. • Vi and Zi > 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

  14. Average Investment in Group Exchange

  15. Tests of Hypothesis 1 Zi = 225

  16. Test of Hypotheses 2 and 3

  17. Individual Behavior

  18. 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.

  19. Definition of Fairness and Investment

  20. Concern with Fairness and Investment

  21. Summary

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