Public Goods Flashcards
Outline the three characteristics of a public good
1 - Jointly provided
2 - Non-excludable
3 - Non-rivalrous
Examples of public goods
Parks
Military
Env. quality
Teamwork
What is the classical prediction in PG problems?
Freeriding
Underprovision
Outline a Voluntary Contribution Mechanism (VCM)
N Players
Player i with endowment ei
Chooses x to contribute (simultaneously)
Keeps ei-xi and gets a return e.g. M*sum(xj) for all js and is (M is the MPCR)
What is the GT prediction for VCM?
No one contributes; incentive to free ride
What is the reality for VCM?
V mixed - depends on who enters the room; fully selfish to fully altruistic
Tend to realise there’s a desire to cooperate but VCM doesn’t elicit this cooperation
What is typical for VCM experiments?
One shot games - about 50% given to public good
Repeated games - coop decay; drops to under 10% with experienced subjects
What is the effect if the MPCR on coop?
Larger MPCR, the less one is deviating from the best response by cooperating and so cooperating is less expensive - thus increases coop
Why do people coop in VCM?
Kindness (warm glow) - but if some coop initially then deviate, this causes a chain reaction and coop breaks down
Confusion - People don’t know the best response, simply making mistakes and coop decay is in fact learning
Outline the Pivot Point mechanism
Public good only provided if enough money received
Can be ‘money back’, or ‘no money back’
What is the effect of PP instead of VCM?
Changes Nash Eq. so there are multiple equilibria; contributing everything is now a nash, along with contributing nothing
Could have positive or negative effects on coop
Outline the evidence of PP
With money back, contributions v high, and visa versa, but there is initial moderate coop that breaks down
(Isacc, Schmidt & Walker, 1989)
