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The Endogenous Formation of Coalitions to Provide Public Goods: Theory and Experimental Evidence

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Author Info

  • David M. McEvoy

    ()
    (Department of Economics, Appalachian State University)

  • Todd L. Cherry

    ()
    (Department of Economics, Appalachian State University)

  • John K. Stranlund

    ()
    (Department of Resource Economics, University of Massachusetts Amherst)

Abstract

This paper examines the endogenous formation of coalitions that provide public goods in which players implement a minimum participation requirement before deciding whether to join. We demonstrate theoretically that payoff-maximizing players will vote to implement efficient participation requirements and these coalitions will form. However, we also demonstrate that if some players are averse to inequality they can cause inefficient outcomes. Inequality-averse players can limit free riding by implementing larger than efficient coalitions or by blocking efficient coalitions from forming. We test the theory with experimental methods and observe individual behavior and coalition formation consistent with a model of inequality-averse players.

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Bibliographic Info

Paper provided by University of Massachusetts Amherst, Department of Resource Economics in its series Working Papers with number 2011-2.

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Length: 26 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:dre:wpaper:2011-2

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Keywords: public goods; coalition formation; inequality aversion; participation requirement; experiments;

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  1. Sutter, Matthias & Haigner, Stefan & Kocher, Martin G., 2010. "Choosing the Carrot or the Stick? Endogenous Institutional Choice in Social Dilemma Situations," Munich Reprints in Economics 18193, University of Munich, Department of Economics.
  2. James Cox & Daniel Friedman & Steven Gjerstad, 2004. "A Tractable Model of Reciprocity and Fairness," Experimental 0406001, EconWPA.
  3. Kosfeld, Michael & Okada, Akira & Riedl, Arno, 2006. "Institution Formation in Public Goods Games," Research Memorandum 029, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. David M. McEvoy & James J. Murphy & John M. Spraggon & John K. Stranlund, 2008. "The Problem of Maintaining Compliance within Stable Coalitions: Experimental Evidence," Working Papers 2008-2, University of Massachusetts Amherst, Department of Resource Economics.
  5. Bagnoli, Mark & McKee, Michael, 1991. "Voluntary Contribution Games: Efficient Private Provision of Public Goods," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 351-66, April.
  6. Carlo Carraro & Carmen Marchiori & Sonia Oreffice, 2003. "Endogenous Minimum Participation in International Environmental Treaties," Working Papers 2003.113, Fondazione Eni Enrico Mattei.
  7. Dannenberg, Astrid & Lange, Andreas & Sturm, Bodo, 2010. "On the formation of coalitions to provide public goods: Experimental evidence from the lab," ZEW Discussion Papers 10-037, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Stephan Kroll & Todd L. Cherry & Jason F. Shogren, 2007. "Voting, Punishment, And Public Goods," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 557-570, 07.
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