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Public projects benefiting some and harming others: three experimental studies

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Author Info

  • Werner Güth

    ()
    (Max Planck Institute of Economics, Strategic Interaction Group, Jena)

  • Anastasios Koukoumelis

    (Max Planck Institute of Economics, Strategic Interaction Group, Jena)

  • M. Vittoria Levati

    (Max Planck Institute of Economics, Strategic Interaction Group, Jena, and Department of Economics, University of Verona)

  • Matteo Ploner

    (DECO-CEEL, University of Trento)

Abstract

Based on an axiomatically derived provision rule allowing community members to endogenously determine which, if any, public project should be provided, we perform experiments where (i) not all parties benefit from provision, and (ii) the projects' "costs" can be negative. In the tradition of legal mechanism design, the proposed provision rule is widely applicable. Additionally, it relies on intuitive fairness and profitability requirements. Our results indicate that the provision rule is conducive to efficiency, despite its multiplicity of equilibria and un- derbidding incentives. The only condition is that the cost of the most efficient project is positive.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2012-034.

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Date of creation: 02 Jul 2012
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Handle: RePEc:jrp:jrpwrp:2012-034

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Keywords: Public project; Bidding behavior; Procedural fairness;

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References

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  1. Charles Cadsby & Rachel Croson & Melanie Marks & Elizabeth Maynes, 2008. "Step return versus net reward in the voluntary provision of a threshold public good: An adversarial collaboration," Public Choice, Springer, vol. 135(3), pages 277-289, June.
  2. Werner Güth & M. Vittoria Levati & Natalia Montinari, 2012. "Ranking alternatives by a fair bidding rule: a theoretical and experimental analysis," Jena Economic Research Papers 2012-005, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Bagnoli, Mark & Lipman, Barton L, 1989. "Provision of Public Goods: Fully Implementing the Core through Private Contributions," Review of Economic Studies, Wiley Blackwell, vol. 56(4), pages 583-601, October.
  4. Werner Güth & Hartmut Kliemt, 2011. "Procedurally Fair Provision of Public Projects An axiomatic characterization," Jena Economic Research Papers 2011-016, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  5. Buchanan, James M, 1975. "A Contractarian Paradigm for Applying Economic Theory," American Economic Review, American Economic Association, vol. 65(2), pages 225-30, May.
  6. Spencer, Michael A. & Swallow, Stephen K. & Shogren, Jason F. & List, John A., 2009. "Rebate rules in threshold public good provision," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 798-806, June.
  7. Cadsby, Charles Bram & Maynes, Elizabeth, 1999. "Voluntary provision of threshold public goods with continuous contributions: experimental evidence," Journal of Public Economics, Elsevier, vol. 71(1), pages 53-73, January.
  8. Simona Cicognani & Aanna D'Ambrosio & Werner Güth & Simone Pfuderer & Matteo Ploner, 2012. "Community Projects: An Experimental Analysis of a Fair Implementation Process," Jena Economic Research Papers 2012-015, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  9. Marks, Melanie & Croson, Rachel, 1998. "Alternative rebate rules in the provision of a threshold public good: An experimental investigation," Journal of Public Economics, Elsevier, vol. 67(2), pages 195-220, February.
  10. Werner Güth & Anastasios Koukoumelis & M. Vittoria Levati, 2011. ""One man's meat is another man's poison." An experimental study of voluntarily providing public projects that raise mixed feelings," Jena Economic Research Papers 2011-034, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  11. 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.
  12. Smith, Vernon L, 1977. "The Principle of Unanimity and Voluntary Consent in Social Choice," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1125-39, December.
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Cited by:
  1. Werner Gueth & Hartmut Kliemt, 2013. "Fairness That Money Can Buy. Procedural Egalitarianism in Practice," Rationality, Markets and Morals, Frankfurt School Verlag, Frankfurt School of Finance & Management, vol. 4(65), May.
  2. Werner Güth, 2013. "Endogenous Community Formation and Collective Provision - A Procedurally Fair Mechanism," Jena Economic Research Papers 2013-013, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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