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Cursed beliefs with common-value public goods

Listed author(s):
  • Cox, Caleb A.

I show how improper conditioning of beliefs can reduce contribution in public goods environments with interdependent values. I consider a simple model of a binary, excludable public good. In equilibrium, provision of the public good is good news about its value. Naive players who condition expectations only on their private information contribute too little, despite the absence of free-riding incentives. In a laboratory experiment, contributions indeed fall short of the equilibrium prediction. Using modified games with different belief-conditioning effects, I verify that subjects fail to condition beliefs properly. However, improper belief conditioning cannot fully explain the results.

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File URL: http://www.sciencedirect.com/science/article/pii/S004727271400228X
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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 121 (2015)
Issue (Month): C ()
Pages: 52-65

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Handle: RePEc:eee:pubeco:v:121:y:2015:i:c:p:52-65
DOI: 10.1016/j.jpubeco.2014.11.006
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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