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Does Competition Resolve the Free-Rider Problem in the Voluntary Provision of Impure Public Goods? Experimental Evidence

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Abstract

In this paper we assume that a public project creates different payoffs to different contributors. Within this environment we study two institutions: Rank Order Voluntary Contribution Mechanism (Rank-Order-VCM) and Random Order Voluntary Contribution Mechanism (Random-Order-VCM). In Rank-Order-VCM individuals compete with their observable contributions towards a public project for a larger share of the payoff that the project generates while in Random-Order-VCM the shares are assigned randomly. We observe that competition outweighs incentives to free-ride and find that Random-Rank-VCM elicits median contributions equal to the full endowment throughout the whole experiment, including the last period. In Random-Rank-VCM the contributions are significantly lower and decline over time.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1007.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 10/07.

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Length: 22 pages
Date of creation: 17 Mar 2010
Date of revision:
Handle: RePEc:cbt:econwp:10/07

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Keywords: Competition; public goods; experiment; voluntary contribution mechanism;

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References

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  13. Tibor Neugebauer & Javier Perote & Ulrich Schmidt & Malte Loos, 2007. "Selfish-biased conditional cooperation: On the decline of contributions in repeated public goods experiments," Kiel Working Papers 1376, Kiel Institute for the World Economy.
  14. Christine Harbring & Bernd Irlenbusch, 2005. "Incentives in Tournaments with Endogenous Prize Selection," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(4), pages 636-, December.
  15. Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September.
  16. Claudia Keser & Frans A.A.M. van Winden, 2000. "Conditional Cooperation and Voluntary Contributions to Public Goods," Tinbergen Institute Discussion Papers 00-011/1, Tinbergen Institute.
  17. Ananish Chaudhuri & Tirnud Paichayontvijit, 2006. "Conditional cooperation and voluntary contributions to a public good," Economics Bulletin, AccessEcon, vol. 3(8), pages 1-14.
  18. Isaac, R Mark & Walker, James M, 1988. "Communication and Free-Riding Behavior: The Voluntary Contribution Mechanism," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 585-608, October.
  19. Roberto Burlando & Francesco Guala, 2005. "Heterogeneous Agents in Public Goods Experiments," Experimental Economics, Springer, vol. 8(1), pages 35-54, April.
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