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

  • 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)

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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File URL: http://courses.umass.edu/resec/workingpapers/documents/ResEcWorkingPaper2011-2.pdf
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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
Contact details of provider: Web page: http://www.umass.edu/resec/

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  1. Cox, J. & Friedman, D. & Gjerstad, S., 2006. "A Trackable Model of Reciprocity and Fairness," Purdue University Economics Working Papers 1181, Purdue University, Department of Economics.
  2. 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.
  3. Ernst Fehr & Simon Gaechter, 1999. "Cooperation and Punishment in Public Goods Experiments," CESifo Working Paper Series 183, CESifo Group Munich.
  4. 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.
  5. Matthias Sutter & Stefan Haigner & Martin Kocher, . "Choosing the carrot or the stick? ? Endogenous institutional choice in social dilemma situations," Working Papers 2008-07, Faculty of Economics and Statistics, University of Innsbruck.
  6. 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).
  7. Carraro, Carlo & Marchiori, Carmen & Oreffice, Sonia, 2004. "Endogenous Minimum Participation in International Environmental Treaties," CEPR Discussion Papers 4281, C.E.P.R. Discussion Papers.
  8. Astrid Dannenberg & Andreas Lange & Bodo Sturm, 2010. "On the Formation of Coalitions to Provide Public Goods - Experimental Evidence from the Lab," NBER Working Papers 15967, National Bureau of Economic Research, Inc.
  9. David M. McEvoy & James J. Murphy & John M. Spraggon & John K. Stranlund, 2010. "The problem of maintaining compliance within stable coalitions: experimental evidence," Working Papers 2010-02, University of Alaska Anchorage, Department of Economics.
  10. Ernst Fehr & Simon Gaechter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," CESifo Working Paper Series 336, CESifo Group Munich.
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