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We Are Not Alone: The Impact of Externalities on Public Good Provision

  • Christoph Engel

    ()

    (Max Planck Institute for Research on Collective Goods)

  • Bettina Rockenbach

    ()

    (University of Erfurt and Center for empirical research in economics and behavioral science (CEREB))

Public good provision is often local and also affects bystanders. Is provision harder if contributions harm bystanders, and is provision easier if outsiders gain a windfall profit? In an experiment we observe that both positive and negative externalities reduce provision levels whenever actors risk falling back behind bystanders. The mere presence of unaffected bystanders already dampens contributions. This behavior seems to result from the interplay of two motives: the desire to realize opportunities for joint gains, and concerns for comparative performance. Individual payoff comparisons to the other actors as well as to individual bystanders drive contributions down.

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Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2009_29.

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Date of creation: Aug 2009
Date of revision: May 2011
Handle: RePEc:mpg:wpaper:2009_29
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