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Journal Article•DOI•

A simple mechanism for the efficient provision of public goods - experimental evidence

Josef Falkinger1, Ernst Fehr2, Simon Gächter2, Rudolf Winter-Ebmer3•
University of Regensburg1, University of Zurich2, Johannes Kepler University of Linz3
01 Mar 2000-The American Economic Review (American Economic Association)-Vol. 90, Iss: 1, pp 247-264
TL;DR: In this paper, a series of experiments designed to investigate the factor of incentive mechanisms in the case of private provisions of public goods is presented. But the results showed that the proposed incentive mechanism is very promising.
Abstract: The author reports on a series of experiments designed to investigate the factor of incentive mechanisms in the case of private provisions of public goods. In the Control treatment, there was no mechanism so that subjects faced strong free-riding incentives. In the so-called Falkinger mechanism treatment, the author implemented the Falkinger mechanism. The studies explored the impact of the mechanism in different economic environments. Results showed that the proposed incentive mechanism is very promising. Section I of the paper introduces the mechanism to be examined. Section II discusses the experimental design. Empirical results are provided in Section III, and Section IV interprets these results followed by a summary.

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Summary

  • In the Control treatment, there was no mechanism so that subjects faced strong free-riding incentives.
  • The studies explored the impact of the mechanism in different economic environments.
  • Results showed that the proposed incentive mechanism is very promising.
  • Empirical results are provided in Section III, and Section IV interprets these results followed by a summary.

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University of Zurich
Zurich Open Repository and Archive
Winterthurerstr. 190
CH-8057 Zurich
http://www.zora.unizh.ch
Year: 2000
A simple mechanism for the efficient provision of public goods:
experimental evidence
Falkinger, Josef; Fehr, Ernst; Gächter, Simon; Winter-Ebmer, Rudolf
Falkinger, Josef; Fehr, Ernst; Gächter, Simon; Winter-Ebmer, Rudolf. A simple mechanism for the efficient
provision of public goods: experimental evidence. American Economic Review 2000, 90(1):247-264.
Postprint available at:
http://www.zora.unizh.ch
Posted at the Zurich Open Repository and Archive, University of Zurich.
http://www.zora.unizh.ch
Originally published at:
American Economic Review 2000, 90(1):247-264
Falkinger, Josef; Fehr, Ernst; Gächter, Simon; Winter-Ebmer, Rudolf. A simple mechanism for the efficient
provision of public goods: experimental evidence. American Economic Review 2000, 90(1):247-264.
Postprint available at:
http://www.zora.unizh.ch
Posted at the Zurich Open Repository and Archive, University of Zurich.
http://www.zora.unizh.ch
Originally published at:
American Economic Review 2000, 90(1):247-264
A simple mechanism for the efficient provision of public goods:
experimental evidence
Abstract
The author reports on a series of experiments designed to investigate the factor of incentive mechanisms
in the case of private provisions of public goods. In the Control treatment, there was no mechanism so
that subjects faced strong free-riding incentives. In the so-called Falkinger mechanism treatment, the
author implemented the Falkinger mechanism. The studies explored the impact of the mechanism in
different economic environments. Results showed that the proposed incentive mechanism is very
promising. Section I of the paper introduces the mechanism to be examined. Section II discusses the
experimental design. Empirical results are provided in Section III, and Section IV interprets these results
followed by a summary.
Citations
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z-Tree: Zurich toolbox for ready-made economic experiments

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Urs Fischbacher
07 Feb 2007-Experimental Economics
TL;DR: Z-Tree as mentioned in this paper is a toolbox for ready-made economic experiments, which allows programming almost any kind of experiments in a short time and is stable and easy to use.
Abstract: z-Tree (Zurich Toolbox for Ready-made Economic Experiments) is a software for developing and conducting economic experiments. The software is stable and allows programming almost any kind of experiments in a short time. In this article, I present the guiding principles behind the software design, its features, and its limitations.

9,760 citations

Journal Article•DOI•
A theory of fairness, competition and cooperation

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Ernst Fehr1, Klaus M. Schmidt2•
University of Zurich1, Ludwig Maximilian University of Munich2
01 Aug 1999-Quarterly Journal of Economics
TL;DR: This paper showed that if some people care about equity, the puzzles can be resolved and that the economic environment determines whether the fair types or the selesh types dominate equilibrium behavior in cooperative games.
Abstract: There is strong evidence that people exploit their bargaining power in competitivemarkets butnot inbilateral bargainingsituations. Thereisalsostrong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained, although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selesh types dominate equilibrium behavior.

8,783 citations

Journal Article•DOI•
A Theory of Fairness, Competition and Cooperation

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Ernst Fehr1•
University of Zurich1
01 Mar 1998-Social Science Research Network
TL;DR: This article showed that if a fraction of the people exhibit inequality aversion, stable cooperation is maintained although punishment is costly for those who punish, and they also showed that when they are given the opportunity to punish free riders, stable cooperations are maintained.
Abstract: There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if a fraction of the people exhibits inequality aversion the puzzles can be resolved.

6,919 citations

Journal Article•DOI•
Cooperation and Punishment in Public Goods Experiments

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Ernst Fehr, Simon Gächter
01 Sep 2000-The American Economic Review
TL;DR: In this paper, the authors show that there is a widespread willingness of the cooperators to punish the free-riders, even if punishment is costly and does not provide any material benefits for the punisher.
Abstract: Casual evidence as well as daily experience suggest that many people have a strong aversion against being the 'sucker' in social dilemma situations. As a consequence, those who cooperate may be willing to punish free-riding, even if this is costly for them and even if they cannot expect future benefits from their punishment activities. A main purpose of this paper is to show experimentally that there is indeed a widespread willingness of the cooperators to punish the free-riders. Our results indicate that this holds true even if punishment is costly and does not provide any material benefits for the punisher. In addition, we provide evidence that free-riders are punished the more heavily the more they deviate from the cooperation levels of the cooperators. Potential free-riders, therefore, can avoid or at least reduce punishment by increasing their cooperation levels. This, in turn, suggests that in the presence of punishment opportunities there will be less free riding. Testing this conjecture is the other major aim of our paper.

3,161 citations

Journal Article•DOI•
Fairness and Retaliation: The Economics of Reciprocity

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Ernst Fehr, Simon Gächter
01 Aug 2000-Journal of Economic Perspectives
TL;DR: The authors discusses the economic implications of reciprocity and shows that a substantial fraction of people behave according to this dictum: people repay gifts and take revenge even in interactions with complete strangers and even if it is costly for them and yields neither present nor future material rewards.
Abstract: This article discusses the economic implications of reciprocity. A long-standing tradition in economics views human beings as exclusively self-interested. In most economic accounts of individual behavior and aggregate social phenomena, the vast forces of greed are put at the center of the explanation. However, many people deviate from purely self-interested behavior in a reciprocal manner. Reciprocity means that in response to friendly actions, people are frequently much nicer and much more cooperative than predicted by the self-interest model; conversely, in response to hostile actions they are frequently much more nasty and even brutal. There is considerable evidence that a substantial fraction of people behave according to this dictum: People repay gifts and take revenge even in interactions with complete strangers and even if it is costly for them and yields neither present nor future material rewards. This notion of reciprocity is thus very different from kind or hostile responses in repeated interactions that are solely motivated by future material gains.

2,516 citations

References
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Posted Content•
On the Voluntary and Involuntary Provision of Public Goods

[...]

B. Douglas Bernheim
01 Jan 2016-The American Economic Review
TL;DR: In this article, the assumption that individuals care about themagnitude of their own contributions only insofar as these contributions affect the aggregate level of expenditures is shown to have untenable implications.
Abstract: This paper extends pre-existing results concerning voluntary private funding of public goods. The assumption that individuals care about themagnitude of their own contributions only insofar as these contributions affect the aggregate level of expenditures is shown to have untenable implications. The analysis suggests that a reexaminationof the factors that motivate individuals to make contributions is in order. Copyright 1986 by American Economic Association.

287 citations

Journal Article•DOI•
Rent dissipation in a limited-access common-pool resource: Experimental evidence

[...]

James M. Walker1, Roy Gardner1, Elinor Ostrom1•
Indiana University1
01 Nov 1990-Journal of Environmental Economics and Management
TL;DR: In this paper, the authors examined group behavior in an experimental environment designed to parallel the conditions specified in noncooperative models of limited-access common-pool resources, and investigated the strength of theoretical models which predict that users of such resources will appropriate units at a rate at which the marginal returns from appropriation are greater than the marginal appropriation costs.

231 citations

Posted Content•
A Solution to the Problem of Externalities When Agents Are Well-Informed

[...]

Hal R. Varian
01 Jan 1994-The American Economic Review
TL;DR: In this article, the authors describe a class of simple two-stage mechanisms that implement efficient allocations as subgame-perfect equilibria for economic environments involving externalities, known as compensation mechanisms, solve a wide variety of externalities problems, including implementation of Lindahl allocations, regulation of monopoly, and efficient solutions to the prisoner's dilemma.
Abstract: The author describes a class of simple two-stage mechanisms that implement efficient allocations as subgame-perfect equilibria for economic environments involving externalities. These mechanisms, known as compensation mechanisms, solve a wide variety of externalities problems, including implementation of Lindahl allocations, regulation of monopoly, and efficient solutions to the prisoner's dilemma. Copyright 1994 by American Economic Association.

227 citations

Posted Content•
Understanding Collective Action: Matching Behavior

[...]

Joel M. Guttman
01 Jan 1978-The American Economic Review
TL;DR: In this article, the authors develop an approach to understand voluntary collective action, where each actor individually finds it optimal to match other actors' contributions, and this matching behavior leads to a Pareto optimal outcome from the viewpoint of the group as a whole.
Abstract: This paper develops an approach to understanding voluntary collective action. A simple model illustrating this approach predicts Pareto optimal provision of a nonexcludable public good in the case of identical actors with perfect information, regardless of the number of actors. In this approach, actors voluntarily subsidize each other's contributions to the provision of a public good. Each actor individually finds it optimal to match other actors' contributions dollar for dollar, and this matching behavior leads to a Pareto optimal outcome from the viewpoint of the group as a whole. The approach developed here differs from two other sets of proposed solutions to the "free-rider" problem. One set of proposed solutions, which may be called "coercion solutions," simply assert that individuals are forced to contribute toward the provision of collective goods, once desired quantities of such goods are known (for example, Mancur Olson; Gary Becker's "theory of collusion;" Theodore Groves and John Ledyard). These solutions, however, beg the question of how the coercion itself is financed, since the policing of collective agreements is itself a public good: noncontributors cannot be excluded from benefiting from the public good resulting from the coercion. Other proposed solutions of the problem of voluntary collective action assume some special property of the public good. Olson's "by-product" solution assumes that the public good can be jointly produced with a private good, and that the private good cannot be produced as cheaply without also producing the public good. George Stigler's "asymmetry" solution, as a second example, assumes that individuals have differing interests regarding the exact form that the public good will take, leading them to contribute so that the good that is provided is optimal from their own individual viewpoints. Both of these solutions implicitly introduce some form of "private-ness" into the public good whose provision they try to explain. This paper avoids limiting assumptions of special characteristics of public goods, and also does not postulate any coercion in the provision of the public good. After a description of the model, some examples of the predicted matching behavior and experimental evidence are briefly discussed.

180 citations

Journal Article•DOI•
Voluntary contributions to a public good when partial contribution is a dominant strategy

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Claudia Keser1•
Karlsruhe Institute of Technology1
01 Mar 1996-Economics Letters
TL;DR: In this paper, the authors present an experiment on voluntary contributions to a public good, where the game has a dominant strategy solution in the interior of the strategy space, and they observe significant over-contribution.

176 citations

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