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Asset Markets And Equilibrium Selection In Public Goods Games With Provision Points: An Experimental Study

  • Enrique Fatas

    ()

    (Universitat de València)

  • Tibor Neugebauer

    ()

    (University Hannover)

  • Bruno Broseta

    (Organismo Público Valenciano de Investigación (OPVI))

In this paper we report some experimental results on the effects that auctioning the right to play a public goods game with a provision point may have on equilibrium selection and efficiency. A control treatment reveals that, as in the experimental literature for similar environments, subjects' behavior converges to the inefficient outcome whenever they are endowed with the right to play the game. However, auctioning off such a right among a larger population of players has a significant efficiency-enhancing effect. Once the Pareto-dominant equilibrium in the second stage is reached, the auction price at the first stage increases to its upper limit, dissipating all players' gains associated with the provision of the public good. The full contribution equilibrium was extremely robust: individual subjects' deviations from the equilibrium strategy were not able to force lower market prices and did not affect provision of the public good in subsequent periods.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2001-29.pdf
File Function: Fisrt version / Primera version, 2001
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2001-29.

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Length: 1 pages
Date of creation: Nov 2001
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2001-29
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  1. Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
  2. 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.
  3. Isaac, R Mark & Walker, James M, 1988. "Communication and Free-Riding Behavior: The Voluntary Contribution Mechanism," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 585-608, October.
  4. Cachon, Gerard P & Camerer, Colin F, 1996. "Loss-Avoidance and Forward Induction in Experimental Coordination Games," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 165-94, February.
  5. Van Huyck John B. & Battalio Raymond C. & Beil Richard O., 1993. "Asset Markets as an Equilibrium Selection Mechanism: Coordination Failure, Game Form Auctions, and Tacit Communication," Games and Economic Behavior, Elsevier, vol. 5(3), pages 485-504, July.
  6. R. Isaac & James Walker & Susan Thomas, 1984. "Divergent evidence on free riding: An experimental examination of possible explanations," Public Choice, Springer, vol. 43(2), pages 113-149, January.
  7. Mark Isaac, R. & McCue, Kenneth F. & Plott, Charles R., 1985. "Public goods provision in an experimental environment," Journal of Public Economics, Elsevier, vol. 26(1), pages 51-74, February.
  8. R. Isaac & David Schmidtz & James Walker, 1989. "The assurance problem in a laboratory market," Public Choice, Springer, vol. 62(3), pages 217-236, September.
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