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The Good of the Few: Reciprocity in the Provision of a Public Bad

People have been shown to engage in favor-trading when it is efficiency-enhancing to do so. Will they also trade favors when it reduces efficiency, as in a series of wasteful public projects that each benefits an individual? We introduce the “Stakeholder Public Bad” game to study this question. In each round, contributions to a common fund increase the earnings of one person (the “Stakeholder”) but reduce the earnings of the rest of the group so much that overall efficiency is reduced. The Stakeholder position rotates through members of the group and the promise of the high reward associated with this position may enable subjects to behave reciprocally. We hypothesize that some people will help a current Stakeholder by contributing in hopes of being rewarded later with a reciprocal gift. In a lab experiment, we find evidence of such favor trading. We also find that Stakeholders in this situation seem perfectly willing to sacrifice the good of the group to reap their own personal rewards, and this is true even when their contribution decisions are public. While the revelation of information about others’ actions and roles has previously been shown to enable efficiency-increasing reciprocity, we show that it also enables efficiency-decreasing reciprocal acts. Subjects who are more risk-averse behave in a way that is more myopically self-interested as compared to less risk-averse people when information conditions preclude favor trading, and subjects who identify with the Democratic Party show more restraint when they are Stakeholder than those who do not.

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Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2012-02.

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Length: 25 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:wil:wileco:2012-02
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