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Those outsiders: How downstream externalities affect public good provision

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  • Delaney, Jason
  • Jacobson, Sarah

Abstract

Some policy problems pit one group׳s interests against another׳s. One group may determine provision of a project (such as a dam) that benefits group members but hurts others. We introduce a model of such projects. In-group members may contribute to a common fund that benefits them as a public good. Benefits from the project may vary within the group. Provision has negative downstream externalities: contributions hurt agents outside the in-group (“Outsiders”), rendering them anti-social. Many models of social preferences predict that such externalities should reduce provision, although conditional cooperation or a preference for in-group members may counteract this. We test this model with a lab experiment using Outsiders with whom the in-group members have more and less contact. With homogeneous in-group benefits, the presence of negative downstream externalities reduces contributions by half when they have closer contact with Outsiders but not at all when they have had no contact. We introduce a rotating high-return position that allows subjects to trade favors. In this setting, contributions of non-privileged members diminish slightly when faced with the negative externality given closer contact with Outsiders, and not at all with less contact. Reciprocal giving occurs whether or not Outsiders are present.

Suggested Citation

  • Delaney, Jason & Jacobson, Sarah, 2014. "Those outsiders: How downstream externalities affect public good provision," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 340-352.
  • Handle: RePEc:eee:jeeman:v:67:y:2014:i:3:p:340-352 DOI: 10.1016/j.jeem.2013.12.007
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    Cited by:

    1. Katerina Sherstyuk & Nori Tarui & Melinda Podor Wengrin & Jay Viloria & Tatsuyoshi Saijo, 2014. "Other-regarding behavior under collective action," Working Papers 201404, University of Hawaii at Manoa, Department of Economics.
    2. Sarah Jacobson & Jason Delaney, 2012. "The Good of the Few: Reciprocity in the Provision of a Public Bad," Department of Economics Working Papers 2012-02, Department of Economics, Williams College.
    3. Delaney, Jason & Jacobson, Sarah, 2015. "The good of the few: Reciprocal acts and the provision of a public bad," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 58(C), pages 46-55.
    4. Dekel, Sagi & Fischer, Sven & Zultan, Ro’i, 2017. "Potential Pareto Public Goods," Journal of Public Economics, Elsevier, vol. 146(C), pages 87-96.
    5. Esther Blanco & Tobias Haller & James M. Walker, 2016. "Provision of public goods: Unconditional and conditional donations from outsiders," Working Papers 2016-16, Faculty of Economics and Statistics, University of Innsbruck, revised Nov 2016.

    More about this item

    Keywords

    Public bad; Public good; Externalities; In-group–out-group; Social preferences; Reciprocity; Parochial altruism; Social distance;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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