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Markets, Motivations And Public Goods: Experimental Investigations On The Impact Of Institutions

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  • Andres Reeson
  • John Tisdell

Abstract

There are many factors which can motivate people to contribute to public goods. These range from intrinsic motivations such as altruism, through social motivations such as concerns for fairness and approval, to extrinsic incentives which include sanctions and payments. Institutions help determine how these motivations are applied and expressed. Psychological studies indicate that extrinsic incentives can crowd out the intrinsic motivations which prompt voluntary contributions to public goods. We applied experimental economics techniques to examine how people in a public good dilemma respond to changing institutions. Our results showed that the introduction of formal institutions (a regulation and competitive tender) crowded out voluntary contributions, with the supply of public good increasing less than anticipated, and in some circumstances actually decreasing. In particular, the introduction of the competitive tender triggered a ‘market instinct’, with participants who previously had been expressing social preferences now seeking to maximise profits. The effects of crowding out persisted even after an institution was removed, suggesting that it may be difficult to reverse. We conclude that policy makers should tread carefully when considering formal institutions to promote public good provision, particularly where desired actions are already occurring voluntarily to some extent.

Suggested Citation

  • Andres Reeson & John Tisdell, 2007. "Markets, Motivations And Public Goods: Experimental Investigations On The Impact Of Institutions," Monash Economics Working Papers 22-07, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2007-22
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2007/2207marketsreesontisdell.pdf
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    Cited by:

    1. Cooke, Benjamin & Moon, Katie, 2015. "Aligning ‘public good’ environmental stewardship with the landscape-scale: Adapting MBIs for private land conservation policy," Ecological Economics, Elsevier, vol. 114(C), pages 152-158.

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