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Abstract

We report the results of a laboratory experiment on crowd-out in a voluntary contribution mechanism public goods game. In our setting, a standard argument states that a tax should not be effective in raising contributions, because agents respond by reducing voluntary contributions by the amount of the tax. Our experimental design focuses in on this intuition by abstracting away from several potential confounds. We use a specification for the payoff function in which there is a dominant strategy for own-earnings maximizing agents, located interior to and in the upper half of the strategy space. The dominant strategy ensures that changes in contributions are attributable to the tax directly, rather than second-order effects due to responses to out-of-equilibrium play by other agents. The dominant strategy is made more transparent by the use of a novel graphical decision interface. We find that individuals robustly choose at or above the own-earnings dominant strategy level. Even with the controls of the design, crowd-out is incomplete, but the degree of crowd-out is higher than in previous studies. Analysis of individual-level decisions provides evidence of different player types. Behavior of subjects not choosing the dominant or Pareto-efficient contributions is well-organized by a model of warm-glow giving with a logit decision error.

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Bibliographic Info

Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) with number 12-02.

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Date of creation: 15 Feb 2012
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Handle: RePEc:uea:wcbess:12-02

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Postal: Norwich NR4 7TI
Phone: 44 1603 591131
Fax: +44(0)1603 4562592
Web page: http://www.uea.ac.uk/eco/
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Postal: Helen Chapman, School of Economics, University of East Anglia, Norwich Research Park, Norwich, NR4 7TJ, UK
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Related research

Keywords: Public goods; crowd-out; warm-glow; logit choice;

Other versions of this item:

This paper has been announced in the following NEP Reports:

• NEP-ALL-2012-09-30 (All new papers)
• NEP-EXP-2012-09-30 (Experimental Economics)
• NEP-GTH-2012-09-30 (Game Theory)
• NEP-PBE-2012-09-30 (Public Economics)

References

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1. Sefton, Martin & Steinberg, Richard, 1996. "Reward structures in public good experiments," Journal of Public Economics, Elsevier, vol. 61(2), pages 263-287, August.
2. Hungerman, Daniel M., 2009. "Crowd-out and diversity," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 729-740, June.
3. Kenneth S. Chan & Robert Godby & Stuart Mestelman & R. Andrew Muller, 1998. "Crowding Out Voluntary Contributions to Public Goods," McMaster Experimental Economics Laboratory Publications 1998-01, McMaster University.
   
   • Chan, Kenneth S. & Godby, Rob & Mestelman, Stuart & Andrew Muller, R., 2002. "Crowding-out voluntary contributions to public goods," Journal of Economic Behavior & Organization, Elsevier, vol. 48(3), pages 305-317, July.
   • Kenneth S. Chan & Rob Godby & Stuart Mestelman & R. Andrew Muller, 1998. "Crowding Out Voluntary Contributions to Public Goods," Department of Economics Working Papers 1998-03, McMaster University.
4. John A. List & David Lucking-Reiley, 2000. "The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign," Vanderbilt University Department of Economics Working Papers 0008, Vanderbilt University Department of Economics.
   
   • John A. List & David Lucking-Reiley, 2002. "The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 215-233, February.
   • John List & David Lucking-Reiley, 2002. "The effects of seed money and refunds on charitable giving: Experimental evidence from a university capital campaign," Natural Field Experiments 00301, The Field Experiments Website.
5. Riber, D.C. & Wilhelm, M.O., 1996. "Altruistic and Joy-of-Giving Motivations in Charitable Behavior," Papers 1-96-4, Pennsylvania State - Department of Economics.
   
   • David C. Ribar & Mark O. Wilhelm, 2002. "Altruistic and Joy-of-Giving Motivations in Charitable Behavior," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 425-457, April.
6. Bardsley, Nicholas & Sausgruber, Rupert, 2005. "Conformity and reciprocity in public good provision," Journal of Economic Psychology, Elsevier, vol. 26(5), pages 664-681, October.
7. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-77, September.
   
   • Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and taxation: theory and evidence," Finance and Economics Discussion Series 2009-11, Board of Governors of the Federal Reserve System (U.S.).
   • Raj Chetty & Adam Looney & Kory Kroft, 2007. "Salience and Taxation: Theory and Evidence," NBER Working Papers 13330, National Bureau of Economic Research, Inc.
8. Ahn, T.K. & Isaac, R. Mark & Salmon, Timothy C., 2009. "Coming and going: Experiments on endogenous group sizes for excludable public goods," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 336-351, February.
9. Richard Ashley & Sheryl Ball & Catherine Eckel, 2010. "Motives for Giving: A Reanalysis of Two Classic Public Goods Experiments," Southern Economic Journal, Southern Economic Association, vol. 77(1), pages 15-26, July.

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